LATVIAN BUDGET CUTS: MOD LACKS FUNDING TO PAY FOR

C O N F I D E N T I A L RIGA 000344 EUR FOR NB AND RPM E.O. 12958: DECL: 06/19/2019 TAGS: PREL NATO MARR MOPS LV SUBJECT: LATVIAN BUDGET CUTS: MOD LACKS FUNDING TO PAY FOR NEW NATO HEADQUARTERS, SEEKS U.S. ASSISTANCE Classified By: CDA Bruce D. Rogers. Reasons 1.4 (b) and (d) ¶1. (C) Summary: Severe budget cuts leave Latvia unable to meet its 2010, 2011 and 2012 contributions to the common funding for the new NATO Headquarters. To avoid defaulting on its obligations, the GOL has begun to explore "bilateral arrangements." Specifically, Latvia hopes that it can persuade other allies to loan it the money to cover the approximately 2.5 million Euros that will come due during that period (out of a total national share of 8 million Euro). Latvia would both repay the loan and re-commence paying the rest of its share of the funding beginning in ¶2013. To date, the GOL has unsuccessfully approached both Belgium and an unnamed second ally. They have now turned to us and have instructed their Ambassador in Washington and their PermRep at NATO to approach the USG. End Summary ¶2. (C) On June 19 Latvian MOD State Secretary Janis Sarts told Charge and Defense Attache that Latvia's recently approved budget cuts had reduced the MOD's 2009 budget from 294 Million Lats (approximately USD 600 Million) to 172 Million Lats. As a result the MOD has instituted a number of stringent measures to ruthlessly cut costs. These include halting all Mine Counter Measure exercises, grounding Latvia's small air force and ceasing all training except that devoted to Latvia's deployments to Afghanistan. In addition, Sarts stated that there was simply no way to come up with the money to pay for their portion of the new NATO HQ for the three years in question. He did believe that Latvia could meet its 2009 commitment of 300,000 Euro. (FYI: Similarly, Latvia will not be able to meet its obligations to the EU's Atalanta mission). ¶3. (C) Sarts first raised the possibility that Latvia would not meet its contributions with the staff of NATO's Infrastructure Committee during a visit to Brussels in April. In response, the International Staff cautioned that, were Latvia to do so, it could lead to a cascading effect with other nations pleading similar budget woes, effectively halting the new HQ. Regardless, faced with an estimated 2010 budget of 120 Million Lats, the Ministry has decided that the HQ is not a priority, when compared to Latvia's commitment to ISAF. Having made that decision, however, the GOL wants to avoid harming the new HQ project and is seeking to meet its obligations through other measures. (FYI: Sarts plans to be in Brussels for further talks with the IS on July 2 and 3.) ¶4. (C) Charge responded that the USG understood the seriousness of Latvia's budget situation and that we knew that this decision was not an easy one. The concept of "bilateral arrangements' (which Sarts claims was suggested by the NATO IS) is novel and we were unable to predict what the US response might be. Charge and DATT recommended that, regardless of the approach that it took, the GOL should stress that it was taking these steps in order to maintain its forces in Afghanistan at current levels. Sarts responded that Latvia could do so under current budget projections until 2011 by which time it will have exhausted its supplies of ammunition and other training materials. On this last point Sarts acknowledged that the Minister disagreed with him and believed that Latvia could maintain its presence in Afghanistan despite the country's budgetary woes. ¶5. (C) Comment: It was unclear whether Sarts was acting on instructions or whether this was an exploratory effort. His attempt to raise the possibility of a withdrawal from Afghanistan was a direct (and obvious) attempt to influence USG decision-making. Having said that, Latvia's budgetary situation is serious and the issue of defense spending as a proportion of national expenditures is likely to become more heated over the coming year. The deployment to Afghanistan has already been criticized by the largest ethnic Russian party in parliament and the GOL wants to minimize the coming argument. The government can defend Afghanistan and ISAF, a 600 Million Euro building is harder to justify. ROGERS