WORKING WITH LATVIA DURING ITS ECONOMIC CRISIS

C O N F I D E N T I A L SECTION 01 OF 02 RIGA 000182

NOFORN
SIPDIS

E.O. 12958: DECL: 04/01/2019
TAGS: PREL MOPS MARR ECON PGOV LG
SUBJECT: WORKING WITH LATVIA DURING ITS ECONOMIC CRISIS

Classified By: Charge d'affaires, a.i. Bruce D. Rogers. Reason: 1.4 (D
)


1. (C/NF) Summary: The current economic crisis has forced
Latvia to scale back its ambitions in foreign and defense
policy. Latvia has identified the NATO mission in
Afghanistan and assisting emerging democracies as its main
priorities. We need to support this narrower focus. Our
challenge is to ensure that Latvia emerges from the crisis
with the same foreign policy orientation and with the same
broad public support. Given Latvia'Qsize, even seemingly
small requests have a disproportionate budgetary impact and
any new commitments will be seen as taking away from social
needs. Therefore, we need to help Latvia do what it can
while not asking it to do what it can't. End summary.


2. (C/NF) Latvia's economic crisis and the terms of its
international financial assistance package are forcing
massive cuts in the state budget. With roughly 15% having
been cut to date, reduced GDP forecasts will necessitate
further, potentially deeper reductions in spending. While
the first round of cuts was largely mechanical, the
government says that it will now examine the budget from
scratch and (finally) undertake a comprehensive assessment of
Latvia's goals and the means necessary to achieve them in
assembling a new budget. The politics of a five-party
coalition government mean this will be a difficult task.


3. (C/NF) Foreign and defense policy budgets have already
taken big hits. The Defense ministry took an especially
large cut in the first round given the size of its budget,
although some of that came from projects outside its core
mission, such as support for sporting facilities and teams.
As a result of the cuts, the Latvian military will cease its
participation in KFOR and EUFOR later this year, and focus on
Afghanistan. At the MFA, salaries and allowances have been
cut, nearly all planned summer transfers frozen, and some
overseas staff recalled. Participation in EU and OSCE
civilian missions has been reduced or eliminated. The
development assistance budget has been effectively
eliminated, but Latvia remains committed to finding other
ways to support emerging democracies, especially Georgia,
Moldova and Ukraine. These decisions have not been taken
lightly. The Latvian government has consistently engaged us
at the highest levels to explain what it is doing and why.
The additional budgetary review currently underway will
almost certainly lead to further cuts later this year.


4. (C/NF) To date, Latvia's foreign and defense policy has
enjoyed broad and deep public and political support. The
additional budget cuts required will now likely start to
effect social spending, which has been largely protected to
date. As individuals are more personally affected, we expect
to see discussions and debates about the relative merits of
social versus foreign affairs/defense spending. While this
is not a phenomenon limited to Latvia, the comparatively
small size of the Latvian budget amplifies the challenges. A
fifty thousand dollar contribution to a trust fund, for
example, is roughly equivalent to the annual pension of 15
retired people. In a country of 2.2 million, that is a
number that means something. We need to do what we can to
ensure that Latvia emerges from this crisis with the same
strong trans-Atlantic orientation it currently has.


5. (C/NF) To achieve this, we need to help Latvia do what it
can and not ask it do what it can't. We will need to temper
our requests to Latvia and focus on the priority areas of
Afghanistan and support to emerging democracies. On the
first, we are in good shape. The partnership with the
Michigan national guard in the OMLT, our FMF and IMET
assistance, and the Embassy's outreach efforts in Latvia all
support the Afghanistan mission and demonstrate to Latvians
that this is a partnership that pays dividends for them and
directly contributes to their own security. The possibility
of a DLA assessment team, combined with rail traffic to
Afghanistan through the northern distribution network, helps
make the case that Latvians get something tangible out the
relationship as well and will assist in maintaining public
support for the Afghanistan mission. On democracy promotion,
the biggest thing that the Latvians want is to be heard and
to contribute politically to the discussion in NATO, the EU
and in e-Pine meetings. We should also look to take
advantage of Latvia's human capital, people with experience
in making the transition we want other countries to make.
Their practical experience is something we cannot duplicate
and using them is another way to demonstrate that Latvia is a
valued partner.


6. (C/NF) We believe that dialing back our requests now will
maintain the relationship on a strong footing and ensure that
when Latvia emerges from the crisis it remains willing and

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able to take an active role in supporting our foreign policy
objectives.
ROGERS