Identifier
Created
Classification
Origin
07RIGA796
2007-10-24 13:45:00
SECRET//NOFORN
Embassy Riga
Cable title:  

SECENSETTER FOR OCT 31 VISIT OF PM KALVITIS TO

Tags:  PREL PGOV PINR NATO RS LG 
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OO RUEHDBU RUEHFL RUEHKW RUEHLA RUEHROV
DE RUEHRA #0796/01 2971345
ZNY SSSSS ZZH
O 241345Z OCT 07
FM AMEMBASSY RIGA
TO RUEHC/SECSTATE WASHDC IMMEDIATE 4464
RHEHAAA/WHITE HOUSE WASHDC IMMEDIATE
INFO RHMFISS/DEPT OF ENERGY WASHINGTON DC IMMEDIATE
RUEATRS/DEPT OF TREASURY WASHDC IMMEDIATE
RUEHZL/EUROPEAN POLITICAL COLLECTIVE PRIORITY
S E C R E T SECTION 01 OF 03 RIGA 000796 

SIPDIS

SIPDIS
NOFORN

E.O. 12958: DECL: 10/24/2017
TAGS: PREL PGOV PINR NATO RS LG
SUBJECT: SECENSETTER FOR OCT 31 VISIT OF PM KALVITIS TO
WASHINGTON DC


Classified By: Charge d'affaires a.i. Stuart M. Seldowitz. Reason: 1.4
(d)

S E C R E T SECTION 01 OF 03 RIGA 000796

SIPDIS

SIPDIS
NOFORN

E.O. 12958: DECL: 10/24/2017
TAGS: PREL PGOV PINR NATO RS LG
SUBJECT: SECENSETTER FOR OCT 31 VISIT OF PM KALVITIS TO
WASHINGTON DC


Classified By: Charge d'affaires a.i. Stuart M. Seldowitz. Reason: 1.4
(d)


1. (C/NF) Summary: Latvian PM Kalvitis comes to Washington
Oct. 31 - Nov. 1 politically weakened but still enormously
influential. Latvia's longest serving PM in the post-Soviet
era, Kalvitis is enmeshed in a political battle over the
dismissal of the anti-corruption chief and with growing voter
angst on the economy. Kalvitis wants this trip to show that
he is still a major player and, for all his faults, it hard
to see a viable candidate for PM in the short term that would
work more closely with us than Kalvitis has. He needs to
hear from Washington our concerns on rule of law issues in
Latvia and our encouragement for Latvians efforts in
Afghanistan. He will want to discuss a range of issues
related to Russia, including energy and CFE, and challenges
the Latvian banking sector face in working with US financial
institutions. And, of course, visa waiver. End summary.

Political situation/rule of law
--------------

2. (C/NF) When PM Kalvitis' office began thinking of this
trip early in the year, it was conceived as opening a new era
in Latvian foreign policy. With Vaira Vike-Freiberga out of
the presidency, there would be room for the the PM to play a
role in foreign policy that wasn't possible in the shadow of
VVF. At the time, the coalition the PM led seemed rock solid
and it was entirely conceivable that Kalvitis, the first
Latvian PM ever to continue in office after an election,
would be able to remain head of government for the entire
life of this parliament through 2010 if he wanted. Kalvitis
had last visited Washington in 2005, so this visit would
highlight the change in his role.


3. (C/NF) Since then the situation has changed dramatically.
Although Kalvitis has much greater influence in foreign
policy with VVF's departure, his domestic support has
weakened considerably. This is mostly due to Latvia's
economic challenges. While growth remains robust, inflation

is running at over 11 percent and wages are spiraling higher,
with no signs of a slowdown in either. On top of that, a
public rebuke from VVF on attempts to change the laws
governing security institutions, corruption scandals
involving people close to the PM and senior coalition
figures, a perception that Zatlers was elected to carry out
the will of the oligarchs and a view that the PM has
responded with arrogance to all of the above have led to a
situation in which Kalvitis, one of Latvia's most popular
figures a year ago, finds himself with polls showing his
negatives running 25 - 30 percent higher than his positive
ratings.


4. (C/NF) All of this has been working its way into the
political mess in which Latvia finds itself. In
late-September, Kalvitis dismissed the head of the
anti-corruption agency (KNAB),Aleksejs Loskutovs. The PM
said that an audit of KNAB showed serious irregularities and
Loskutovs must be held responsible. But the State Auditor
said publicly that the violations were minor and far more
serious ones were found at other ministries where no
similarly tough action was taken. The Prosecutor General, a
highly respected figure here, has also said that he has found
no evidence of criminal wrongdoing, that he thinks dismissing
Loskutovs is excessive, and has questioned the legal basis
for Kalvitis to suspend Loskutovs from office pending a
parliamentary vote on removal. As this has played out,
Kalvitis has found fewer and fewer friends by his side. FM
Pabriks has resigned, Local government minister Stokenbergs
was fired, and coalition members are showing at best tepid
support for Kalvtis in public comments.


5. (S/NF) Plenty of people believe that the real reason for
the dismissal of Loskutovs was a combination of an attempt to
stop the KNAB from carrying out investigations of Latvia's
oligarchs and politically connected people and a desire to
block a large fine against Kalvitis' People's Party for
violations of campaign financing rules in the October 2006
parliamentary elections. We agree in part, but we think it
is part of a larger operation. The country team, on basis of
multiple credible reports and our discussions with people in
and out of government, continues to believe that the ultimate
goal is to create greater avenues for political control and
manipulation of law enforcement investigations in the guise
of ensuring better oversight of security and law enforcement
institutions. This could result in a single, Russian FSB
style agency with dominance over all spheres of internal
security that would be subject to political influence without
checks and balances from other agencies. This would have

RIGA 00000796 002 OF 003


negative consequences all aspects of legal and business
transparency and, as we have reported for some time, we fear
that a consequence (likely unintended) of that effort would
be to significantly weaken the protections on intelligence
information that the Latvians receive from us and other NATO
allies.


6. (C/NF) For this reason, we believe that the number one
message that Kalvitis needs to hear in Washington is that
while we greatly value Latvia as a NATO ally, this is an
bilateral relationship and an alliance based on common
values, including the rule of law, and we expect Latvia will
continue its hard work to strengthen the rule of law and
combat corruption. Where Latvia would like help, we stand
ready to assist. Kalvitis may talk about his desire to
streamline Latvian law enforcement agencies to avoid
duplication of effort. We support the idea in principle, but
as noted above, we want to make sure that this does not
become a vehicle for permitting political interference in
sensitive cases or for consolidation of power into a single
agency at the executive level.


7. (C/NF) As prime minister, Kalvitis has been very
pro-American in his orientation. He studied briefly in
Wisconsin, regularly vacations in the US, and his oldest son
is studying at an American school known for turning out
hockey players (ice hockey is Kalvitis' true passion in
life). For all the challenges we face with him, it is hard
for us to see in the short term a viable candidate for PM who
would be more open to working with us and we can see plenty
who would be far more resistant to it. We have seen Kalvitis
stand up to the oligarchs in the past, but we believe he does
not feel empowered to do that right now. Clear messages from
Washington of our concern combined with statements of support
for him could change that.

NATO issues
--------------

8. (C/NF) Latvia continues to be a committed member of the
Alliance and Washington interlocutors should reinforce this
to Kalvitis. Latvia has increased its contributions in
Afghanistan and is planning, in cooperation with its state
partner the Michigan National Guard, to stand up an OMLT
there next year. Given Latvia's size, it cannot take on a
significantly larger mission within ISAF and it always needs
partners for any deployment. In this context, Kalvitis
should hear that the US remain committed to the FMF funding
that helps them develop their expeditionary capabilities.
The Latvians seem happy with the current agreement on air
policing for the Baltics, so that issue is not likely to
arise.

Russia - bilateral, energy, CFE
--------------

9. (C/NF) The relationship with Russia permeates almost all
aspects of Latvian foreign policy and much of its domestic
policy as well. Kalvitis deserves credit for stabilizing the
bilateral relationship with Russia. He has since coming to
office focused on taking steps to normalize the relationship.
Starting with the visits of the Russian Patriarch and former
President Yeltsin to Riga, to agreement on an
intergovernmental commission following nearly 12 years of
discussion, to signing of the Latvia-Russia border treaty,
Kalvitis has led the way in putting the relationship on a
more stable footing. In doing so, Kalvitis and his staff
have made good use of partners including us, the Germans,
and, to a lesser degree, the European Commission to move
things with Moscow. The pinnacle of this would be the
planned visit of Lavrov to Riga November 14 to exchange
instruments of ratification on the border treaty. This would
be the first visit of a Russian FM to Riga since the
restoration of independence.


10. (C/NF) There are plenty of rumors in Latvia that he
placed this focus on Russia for financial reasons, perhaps
even personal ones. We cannot refute those claims, but we
think they sell Kalvitis a bit short. In our discussions
with him, he seems genuinely to believe that Latvia must have
a normal relationship with Russia and that membership in the
EU and NATO provides Latvia the confidence and security to
negotiate with Moscow on more even terms.


11. (C/NF) Plenty of problems remain in the relationship and
one aspect on which Kalvitis has focused is energy. Latvia
is wholly dependent on Russia for gas. On electricity,
Latvia has hydro resources and the Ignalina nuclear plant in
Lithuania, but with average rain fall dropping and Ignalina
due to close in 2009, Latvia could become more dependent on

RIGA 00000796 003 OF 003


Russia for electricity. Kalvitis has been frustrated with
the machinations over a new Ignalina, and fears that
Lithuania is fully prepared to leave Latvia out in the cold
on this. He has shown at least some interest in biofuels due
to Latvia's large forests. He had hoped to visit the
National Renewable Energy Lab on this visit, but the
political situation precludes that. He will be interested in
our views on energy security and how we are working to reduce
the Russian hammer lock on supplies in the region.


12. (C/NF) Kalvitis will also raise Latvian views on Russian
behavior and seek an update on our discussions with Moscow on
CFE and missile defense. On CFE, the Latvians are nervous
that we will force them to make concessions before they even
join the treaty. They understand that they can help in a
larger process to bring Moscow back to the treaty, but don't
want to be the only bargaining chip on the table. Kalvitis
has been personally very supportive of missile defense,
publicly announcing his willingness for Latvia to play a role
if useful. He will wonder if developments in Poland and the
recent 2 plus 2 in Moscow have changed our thinking on MD.

Banks
--------------

13. (C/NF) A major goal for Kalvitis on this trip is to try
to get some clarity on US views on the Latvian banking
sector. This is something that is important to his domestic
political backers, which gives it added urgency for him.
Following our sanctioning of two Latvian banks in 2005 under
section 311 of the Patriot Act for lax anti-money laundering
controls, Kalvitis, Latvian regulators and banks took a
number of steps to clean up the system. In 2006, we said
that the Latvians had done a great job, but one bank remained
under sanction due to concerns about its ownership. This
summer, two large American banks closed corresponding
accounts with Latvia after their US regulators expressed
concerns about Latvia's banking sector. The Latvians feel
that they have done everything we asked and they can't shake
this reputation. They are willing to work with us to address
our concerns, but complain they don't know what those
concerns are. An advisor to Kalvitis told us in confidence
that the PM believes that we cut a deal with the Russians to
squeeze Latvian banks which are doing a fair amount of
business in the FSU and compete with Russian banks.

Visas
--------------

14. (C/NF) Kalvitis will also seek information on efforts to
bring Latvia into the visa waiver program, the aspect of the
bilateral relationship by which most Latvians judge the
strength of the relationship. He will express appreciation
for administration efforts to date but ask about next steps.
There is a strong rumor in the GOL that we will soon announce
that Estonia and the Czech Republic will join he program and
we have been unable to shake that. We recommend that people
he meet with simply lay out the facts of what is possible
under the new law and hope that endless repetition will allow
the Latvians to better understand the situation.

Liepajas Metalurgs
--------------

15. (U) Kalvitis may raise the issue of US countervailing
duties against importation of Latvian steel rebar. The main
producer, Liepajas Metalurgs, is Latvia's largest private
employer and the company claims that the sanctions have cost
them jobs. As we saw with former President Vike-Freiberga's
visit in May, when any senior Latvian travels to the states,
the company pushes hard for this to be raised at a political
level. Repeated attempts on our part to get the Latvians to
engage with Congress on this issue have met with only limited
success. They continue to feel the executive branch is the
best place to raise this.
SELDOWITZ