EASTERN LATVIA - ECONOMIC WOE, SOCIAL ACCEPTANCE

UNCLAS SECTION 01 OF 02 RIGA 000275

SIPDIS

E.O. 12958: N/A
TAGS: PGOV ECON SOCI PHUM EIND LG
SUBJECT: EASTERN LATVIA - ECONOMIC WOE, SOCIAL ACCEPTANCE

(U) 1. Summary: Latgale, the region of Latvia bordering Russia,
suffers a particularly dire economic situation. While some
higher-value-added industries have weathered the economic crisis,
the predominant sectors have declined. Unemployment is
significantly higher than the Latvian average, and many young people
leave the region upon finishing school. Despite the economic pain,
social integration in the region is relatively good, and the
political establishments in various towns are experimenting to try
to turn their economic fortunes around. No political party holds
particular sway in the region, but opinions on whether this might
change in the upcoming election were mixed. End Summary.

(U) 2. In March and April, 2009, Pol-EconOff visited cities across
Eastern Latvia, discussing political, economic, and social trends in
the region. We spoke with municipal governments, NGOs, businesses,
and high-school students in Daugavpils, Rezekne, Kraslava, Balvi,
and Dagda.

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Economy in Bad Shape
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(U) 3. The most prominent, if unsurprising, feature of the region is
an economy that continues to lag behind much of the rest of Latvia.
Local registered unemployment reaches as high as 23% in the region
surrounding Rezekne. The construction industry that had once
provided a boost to the region's economy has almost completely
collapsed. However, more advanced manufacturing continues at an
only slightly diminished rate. For example, prominent employers
like a large train repair and maintenance shop, a forensic
instrument producer, and French-owned electronic cable maker
continue their relatively labor-intensive activities in Daugavpils
at only slightly reduced levels.

(U) 4. The cities of the region are trying a variety of approaches
to ease economic pain, but so far results are limited. Local
government in Daugavpils, by far the largest population center in
the region, is focused on using large public works to boost
employment. Among other plans, they have just announced a tender to
renovate a Soviet-era military airport to build a commercial
facility. Like most nearby cities, Daugavpils' leaders charge that
the national government directs too much public money to Riga, to
the unfair exclusion of other regions.

(U) 5. Other cities have taken more market-based approaches.
Rezekne, for example, has a Special Economic Zone featuring
significant tax breaks for businesses started there. However, few
businesses have built facilities in the zone, and those that have
are local businesses that see the tx breaks as a bonus, not as the
driver of their decision to locate in the area. Although NGOs are
still relatively scarce in Latvia, residents of Balvi have started a
project that offers free adult-education classes in English and
bookkeeping to help spark entrepreneurship in the area.
Nevertheless, many high school students plan to leave the region
upon graduation, unlikely to return.

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Politics in Less Bad Shape
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(U) 8. Latgale is perhaps the most diverse region of Latvia, which
large groups of ethnic Latvians and Russians share with smaller
populations of Belarusians, Poles, Lithuanians, and others. Unlike
in Riga, where Latvian-Russian ethnic tensions are running high,
most in Latgale see ethnicity as a non-issue. The vast majority of
Latgale's Russian-speaking residents are citizens (their families
having lived in the area long before the Soviet occupation),and the
largest cities have cultural centers or civic organizations
representing each of the minority groups.


(U) 8. The political landscape in Latgale remains splintered. The
towns in this region are not large, and the politics is largely
driven by personality rather than party. Rezekne is a perfect
example, where the 13 seats on the town council are held by 11
parties. With even more parties having announced their intentions
to field candidates in the upcoming June 6 election, few observers
are willing to speculate on who will come out ahead. While many of
our interlocutors expressed concern about the potential closure of
schools for budgetary reasons, few seemed to think it was going to
motivate many voters in the region. While the national parties
stand to gain or lose standing in these elections, losses or gains
in most of Latgale will probably be modest.


9. Inga Goldberga, Head of the Daugavpils Econcomic Development
department, expressed concern that the difficult economic conditions
may drive many of the city's ethnic-Russian majority to vote for
PCTVL, a far-left party identified with a more aggressive advocacy
for Russian residents' interests.


10. Comment: Eastern Latvia is suffering the brunt of Latvia's
economic woes. While Latgale's political leaders seem energetic and
are trying a variety of approaches to get the economy on track, it

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is not clear that they are up to this monumental task. However, the
survival of high-tech manufacturing and the relatively harmonious
ethnic relations in Daugavpils show that there are still lessons
Riga could learn from Latvia's second city.

WASER