WHAT'S LIKLEY TO HAPPEN NEXT IN LATVIA?

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SIPDIS

SIPDIS
NOFORN

E.O. 12958: DECL: 11/02/2017
TAGS: PGOV PREL LG
SUBJECT: WHAT'S LIKLEY TO HAPPEN NEXT IN LATVIA?

Classified By: Charge d'affaires, a.i. Stuart M. Seldowitz. Reason: 1.
4 (d)


1. (C/NF) Summary: Conventional wisdom in Latvia is that PM
Kalvitis will announce his resignation following the adoption
of the 2008 budget, scheduled for November 8. If he does
step down, we expect a somewhat protracted period of
government formation that could likely go until Christmas or
even in to early 2008. The preferred option of political
elite will be to preserve the current four party coalition,
but that may not be possible. There is a possibility that
the leftist Harmony Center could join government, which would
mark the first time that an ethnic-Russian focused party has
joined government since the restoration of independence, but
many Latvian politicians are nervous at this prospect. We
think it is unlikely at this point that President Zatlers
will call a referendum to dissolve the parliament, but if a
workable coalition cannot be found, this is a possibility.
Getting the GOL to focus on all but the most pressing issues
in this period will be difficult; as many decisions as
possible will be deferred to ensure maximum bargaining chips
in coalition formation. The event that started all of this,
the dismissal of the anti-corruption chief, has been taken
off of center stage. A large public protest in favor of
"good government" will take place November 3. End summary.

How long does Kalvitis have?
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2. (U) Latvia's political instability deepened with the
resignation October 31 of Daiga Stake as welfare minister.
Although Stake was among the government's most unpopular
ministers and her departure from cabinet has been rumored
since spring, the government now faces four empty seats at
the cabinet table - about a third of the cabinet. President
Zatlers immediately announced that the government could not
go on like this and publicly urged the government to quit
following adoption of the 2008 budget in order to allow a
complete reconstitution of the government (as opposed to
filling each vacant seat individually). The budget is
scheduled for adoption on November 8. The government bought
itself some additional political breathing room by placing
the dismissal of anti-corruption bureau (KNAB) chief
Loskutovs on the back burner through a series of
parliamentary and legal maneuvers (septel).


3. (U) The government will come under additional pressure on
November 3 when a large rally is scheduled in the Dome
Sqaure. Pauls Rauseps, a journalist helping to organize the
event, estimates 15 - 20,000 people could attend. If true,
this would me a huge event in the Latvian context and the
largest political rally since the restoration of independence
in 1991.


4. (C/NF) Everyone we talk to says they believe Kalvitis will
go following adoption of the budget. His foreign policy
advisor, Peteris Ustubs, said the PM has been helping the
civil servants in his office (like Ustubs) line up follow on
jobs. Vaira Paegle, an MP from the PM's People's Party (TP)
told us that the party leadership and rank-and-file know that
with the party's poll numbers dropping precipitously and the
PM's negative personal rating running almost two-to-one over
his positive rating, he needs to go. Paegle said Kalvitis
could even be dumped as head of the party, which she thought
would be an even more bitter pill for Kalvitis to swallow
than losing the PM's chair. Former minister Aigars
Stokenbergs, recently fired and kicked out of TP, expressed
lament that his former friend Kalvitis had reached this point
but said "he is a dead duck."


5. (C/NF) The expectation, though, is that Kalvitis will
announce an intent to resign, but delay implementation.
Eduards Stiprais, chief of staff to President Zatlers,
thought that the PM would announce his departure very quickly
after the adoption of the budget, but say that he would step
down after the TP party congress on Nov. 24. Others have
suggested he would stay until Dec. 3, the third anniversary
of his becoming PM. Stiprais indicated that he could see at
least a small possibility of the PM trying to hang on and we
would agree that nothing in Latvian politics is final until
it happens. Nevertheless, it is hard to imagine Latvia
beginning 2008 with Aigars Kalvitis as head of government.

If he goes, then what?
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6. (C/NF) Should Kalvitis resign, the constitution requires
President Zatlers to identify someone to form government.
Stpirais confirmed that the President, who consulted with all
political parties when the political crisis began, would
undertake a new round of consultations to identify someone to
lead a new government. While Stiprais did not dismiss the
possibility of looking outside of parliament or the current

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government for such a candidate, he said that the most
important criteria would be finding someone who could form a
government that would have and could retain the confidence of
the parliament.


7. (C/NF) The current coalition is made up of four parties,
all predominantly ethnic Latvian and all calling themselves
center-right. In addition to Kalvitis' People's Party (TP,
22 seats),there are the Greens and Farmers (ZZS, 17 seats),
First Party/Latvia's Way (LPP/LC, 10 seats) and For
Fatherland and Freedom (TB/LNNK, 6 seats). The current
thinking within the coalition appears to be to try and
continue the same grouping, just change all the faces. But
none of the parties was as strong as it was coming out of
elections last year. TP has seen its ratings slide and lost
one member when Stokenbergs returned to parliament and became
independent. Former FM Pabriks has also returned to
parliament and his future in TP is questionable at best. ZZS
has seen its speaker resign and plead guilty to lying to
investigators in a corruption case, and its candidate for PM
arrested for large scale bribery and corruption. It also
lost a seat in parliament when a member left the party.
TB/LNNK is riven by a serious leadership contest between two
of its MEP's, Roberts Zile and Girts Valdis Kristovskis, that
will be decided at a November 24 party conference.
Kristovskis has already said that he would pull the party out
of the coalition if he wins. Finally, LPP/LC has avoided
major scandal, but the controversial image of Transport
Minister Ainars Slesers (considered Latvia's third oligarch)
and the party's conservative social agenda have prevented it
from gaining any ground among the public.


8. (C/NF) Given the TP and TB/LNNK congresses on November 24,
it will not be clear until after that date whether the
current coalition can hold together. If it can, we think it
most likely that TP, as the largest party, would try to keep
the PM's post. Finance Minister Oskars Spurdzins, Riga City
Development Chief Edmunds Krastins, and Mayor of Liepaja
Uldis Sesks are commonly named. Also possibilities, although
less likely, are culture minister Helena Demakova and former
health minister Gundars Berzins. ZZS, which has the
Speaker's chair, says it will not nominate someone for PM.
LPP/LC, if given the chance, would most likely nominate
Interior Minister Ivars Godmanis or Slesers himself.

A new coalition?
--------------

9. (C/NF) If the current four parties cannot come to an
arrangement, most likely because TB/LNNK leaves, then
attention would turn to the two largest opposition parties,
New Era (JL, 18 seats) and Harmony Center (SC, 17 seats).
Both have internal problems of their own. JL has faced
constant leadership struggles in the past year, with three
changes of leadership since the elections. SC is a leftist
party, which primarily draws its support from ethnic Russians
and other minority communities. Among its components (it is
actually the union of four parties) are the Latvian
socialists. Their leader is Alfreds Rubiks, the last First
Secretary of the Communist Party of the Latvian SSR. Barred

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from politics for his communist affiliation after January
1991, Arturs Rubiks, his son, is his stand-in in parliament.
SC also has a component party that is understood to be under
the control of Valery Kargins, the head of Parex Bank, and
one of Latvia's wealthiest men. Parex has questionable
associations with a number of businesses from Russia and the
FSU.


10. (C/NF) Bringing either party into government would be
difficult, hence the preference to keep the current
coalition. JL is viewed by the other parties as
sanctimonious and self-righteous. JL was he largest party in
the previous parliament and in government until April 2006.
However, representatives of the other parties all describe
with bitter animosity their working relationships with JL in
that period and say they want to avoid going back to that
situation. Also, JL is viewed by others as having weak party
discipline, making it possibly difficult to ensure
parliamentary adoption of government decisions. SC is
politically difficult because no "Russian party" has ever
been in government before and many ethnic Latvians remain
distrustful of them. The inclusion of Rubiks and his
socialists would be a lightening rod for many Latvians and
too harsh a reminder of Soviet days. If SC were brought in,
kicking Rubiks and his group out of the party would likely be
the price of admission. It is worth noting that SC nearly
came in to government following the 2006 elections and they
were willing to toss out Rubiks at that point. The
difference now is that several of the parties, especially TP
and ZZS, have nationalist voters who are already disgruntled
and bringing in "the Russians" would likely be the final
straw for them, further damaging these already weakened
parties.

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The nuclear option
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11. (C/NF) Another possibility would be for President Zatlers
to dissolve the parliament and call for new elections. This
has not been done since the restoration of independence.
Stiprais, his chief of staff, told us that the president is
"under intense pressure" to take this step, but is reluctant
to do so. Stiprais said that the president's main concern is
that new elections would likely result in SC becoming the
largest or second largest party in parliament (it is polling
at the top) and the president was not ready to see Russians
"some of whom are of questionable loyalty" reach that
position. We think a second reason for Zatlers' reluctance
is that dissolving parliament requires a referendum and,
while such a vote is likely to pass, if it failed, under the
constitution Zatlers is removed from office.


12. (C/NF) Given the reasons above and the enormity of the
decision, we think dissolution is unlikely in the near term.
Moreover, members of the current coalition would all likely
lose seats in such an election, so they very much want to
avoid new elections. But if a workable and stable coalition
cannot be found (or if more and more members of parliament
get caught up in anti-corruption investigations),Zatlers may
have little choice. In that case, former minister
Stokenbergs has told us that he would be ready to form a new
political party focused on anti-corruption and promoting a
Scandinavian model of welfare state and support for business
to run in those elections and it is likely that such a party
could do quite well.

What it means for us
--------------

13. (C/NF) How ever the process plays out, we think it will
be at least the end of November before we have a complete
cabinet in place, and the process could easily extend to
Christmas or even into early 2008. We also expect that any
new cabinet would look significantly different from the
current one, meaning lots of ministers needing to get up to
speed on their portfolios. The result is that we could be
looking at anywhere from one to three months when the GOL is
unable to take important political decisions. Already the
privatization of national telephone company Lattelecom (which
involves an American buyer) has been put off because several
parties want to revisit that in the context of coalition
negotiations. We also think that full resolution of the fate
of KNAB chief Loskutovs will have to wait until the new
government is in place. Getting the GOL to undertake new
initiatives in this period will be extremely difficult as
well.


14. (C/NF) As this all plays out, there are some important
questions to follow. Will some of the oligarchs be sidelined
and replaced by leaders with an anti-corruption, pro-Western
focus? Will Latvia take a step forward to becoming a truly
multi-ethnic society or will the ethnic dividing lines in
politics persist and even deepen? Will the people who have
reengaged in politics to join marches, online chats and other
activities stay interested or return to ambivalence? The
answers to these will tell us a lot about where Latvia is
sixteen years after the restoration of independence
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