Blow to patronage - Latvia limits size of advisory

UNCLAS RIGA 000188 SIPDIS E.O. 12958: N/A TAGS: ECON EFIN KCOR ETRD PGOV LG SUBJECT: Blow to patronage - Latvia limits size of advisory councils ¶1. Summary: The Saeima (Parliament) passed a new law that limits the number of advisory councils at state enterprises, and caps the maximum number of members serving on them. Advisory councils are often used by political parties in power as a financing and patronage tool. The move was part of the government's effort to reduce government spending, and a step towards much needed structural reforms. It was also aimed at showing solidarity with the general public at a time of economic hardship and falling party popularity ratings. End Summary. ¶2. The new law eliminates advisory councils at state limited liability companies (LLCs),and introduces specific criteria under which councils may be formed at state corporations. The criteria include employee count, level of equity and net turnover in a given year. The law also caps the maximum number of council members at three, and specifies that members must have relevant education and work experience, and have proficiency in Latvian. With respect to job qualification standards, the law will not, however, be applied retroactively. In the future, members will be chosen using competitive selection procedures. The law will not be binding to partially state owned companies and corporations, such as AirBaltic, and subsidiaries of state enterprises. This presents a potential loophole that could be used to bypass the new regulations. ¶3. Currently only eight state corporations would qualify to maintain an advisory council, bringing the total of council members at state corporations down to a maximum of 24 from the current 140. Annually this should save the state roughly 1 million Lats ($2 million USD) on corporations alone. The number of councils at state LLCs is not available; however, their elimination will certainly result in additional savings. The law went into effect on April 1, and any revisions or modifications will have to be made by May 1. ¶4. Comment: While the bill was introduced as both a cost-saving and anti-corruption measure, the limit to political patronage is the most significant outcome. The Saeima went silent immediately after the vote to pass the measure, as previously it would have been hard to image lawmakers supporting such a blow to the patronage system that has sustained Latvian political parties. Passage of the bill is a positive step for building rule of law in Latvia. Rogers