PM ACCEPTS FM'S RESIGNATION; MACHINATIONS CONTINUE

UNCLAS SECTION 01 OF 02 RIGA 000788 SIPDIS SIPDIS E.O. 12958: N/A TAGS: PGOV PREL LG SUBJECT: PM ACCEPTS FM'S RESIGNATION; MACHINATIONS CONTINUE ¶1. Summary: October 22 began what will be a busy week in Latvia's ongoing political saga. Prime Minister Aigars Kalvitis revised his earlier decision and accepted the resignation of Foreign Affairs Minister Artis Pabriks, effective October 29. The opposition has called a special session of parliament for October 23 for a confidence vote in the government, which is expected to fail, but it will be a barometer of the situation within the coalition. October 24 there will be the first vote on the 2008 budget, which is also in effect a confidence vote in the government. That same day, the anti-corruption agency is expected to announce fines against political parties for violations of campaign financing laws in the October 2006 elections. The PM's People's Party is expected to be hit with a fine of up to one million dollars. That event will bring into sharp relief the issue that started the current crisis; the dismissal of anti-corruption chief Loskutovs. It remains unclear, though, when parliament will take that up. Meanwhile, President Zatlers continues his political consultations, but his desired way forward remains unclear. End summary. ¶2. The week began when Prime Minister Aigars Kalvitis reversed his earlier decision and accepted the resignation of Foreign Affairs Minister Artis Pabriks, effective October 29. Pabriks will return to the parliament and says that he will remain in People's Party. Effective October 29, Minister of Culture Helena Demakova will serve as acting minister of foreign affairs until the Saeima approves a new minister. MFA contacts tell us that how this will all play out in practice remains very unclear. ¶3. While Pabriks will remain in People's party, he may take a more independent approach in parliament. Sacked local government minister Stokenbergs has said he will return to parliament and be an independent. And coalition member Visvaldis Lacis has left his party over his announcement last week that he was told three weeks ago how to vote on the Loskutovs case. Lacis has previously voted against the government on key issues, including the border treaty with Russia, but it still matters that he is officially becoming independent. ¶4. Recent developments have energized the opposition. All three opposition parties in parliament signed a petition to convene an extraordinary Saeima session to hold no-confidence vote on the Kalvitis government. Despite signs of clashes within the ruling coalition, it is not expected that vote will pass on October 23. It will, however, provide a useful barometer of feelings within the coalition; especially if not many coalition MP's speak in defense of the government. ¶5. The government has moved up the first reading of the 2008 budget to a special Saeima session on October 24. It is expected to pass, as the PM had intensive discussions with coalition partners to secure their support. He also has met with the unions and addressed their concerns about what they viewed as too small increases in wages for public sector employees. The PM claims that the money is being found elsewhere in the budget and that he will be able to preserve a surplus of one percent of GDP, which economic experts had said was essential for Latvia's economic health. ¶6. Also on October 24, the KNAB is holding a press conference to announce fines against political parties for illegal contributions in the October 2006 parliamentary elections. It is widely believed that Kalvitis' Peoples Party and coalition partner First Party will be fined. The levy on People's Party is expected to be 500,000 Lats, or roughly one million dollars. Many speculate that the action to suspend and dismiss Loskutovs was designed to pre-empt these fines, but that does not appear to be the end result. One opposition MP speculated to us today that the vote on Loskutovs in parliament could come as early as this Thursday, but that strikes us as unlikely. The government is not yet in a position to manage a vote on Loskutovs' future, we believe. ¶6. President Zatlers remains active, but his views on the way ahead are unclear. On October 19, after meeting with all parties represented in parliament, the President seemed to say that he opposed dismissing the Saeima, as proposed by opposition parties and labor unions. In an October 21 press interview, the President placed responsibility for resolving the current crisis with the Saeima, specifically in its handling of the budget and Loskutovs. If the Saeima "fails in its duty", the President warned that he was willing to use any instruments provided him by the Constitution, including the dismissal of the Saeima. (Note: Under the constitution, this would require a referendum and, if it failed, Zatlers would be removed from office. End note.) ¶7. Comment: The constantly changing statements and actions show that there could be some unexpected moves from the government and the President in the coming days, but we continue to believe that the political leaders will attempt to stage manage the situation. On the one hand, the government now has three vacant positions in the cabinet and can count on at least two fewer votes in parliament and likely three. On the other hand, it remains unclear how a new coalition could be easily assembled. It is possible that the government will operate in a continued limbo and seeming crisis through December, as two coalition members have party congresses at RIGA 00000788 002 OF 002 the end of November that could be vital. In the meantime, Latvia's attention will likely be focused heavily inward. SELDOWITZ