SCENESETTER FOR MEETING WITH LATVIAN FM RIEKSTINS

C O N F I D E N T I A L RIGA 000371 SIPDIS EUR FOR NB E.O. 12958: DECL: 07/08/2010 TAGS: PREL ECON PINR LG SUBJECT: SCENESETTER FOR MEETING WITH LATVIAN FM RIEKSTINS Classified By: Classified By: CDA Bruce Rogers for reasons 1.4 (b) and (d) ¶1. (U) The Secretary's meeting with Maris Riekstins provides an opportunity to demonstrate our strong support for Latvia at a time when it faces serious economic difficulty. The meeting will support the government as it restructures government fiscal policy and functions to comply with commitments to international lenders, show our appreciation of Latvia's NATO commitments during the current financial hardships, and encourage officials to resolve Jewish property restitution issues. Economic crisis straining GOL -------------- ¶2. (U) After years of double-digit GDP growth, Latvia's GDP has fallen by 18% in the last year and the government has found itself in need of assistance. The IMF, European Commission, and others offered a loan package, dependent on austerity requirements, to the GOL. In June, the parliament passed amendments cutting the budget, including cuts in government wages, pensions, and social support payments. The EC has declared this sufficient to continue disbursing loans, but the IMF is taking more time to study the GOL plan. The government's exit strategy is adoption of the euro. To meet the required 3% budget deficit target to do so, additional measures will be needed in 2010 and 2011 to shrink the deficit. These will likely require painful tax increases and cuts in entitlements. ¶3. (U) We have been supportive of international assistance to Latvia, but have stressed to the government that it needs to follow through with meaningful structural reforms. We have also pressed the GOL to develop contingency plans in case their initial cost-cutting efforts are deemed inadequate by the IMF. To date, they have resisted doing so, fearing that it could lead to a lack of confidence in "Plan A." You should express our support for Latvia during the crisis, but emphasize that single-year stopgap cuts will not be sufficient - long-term strategic thinking, including contingency plans, will be critical. NATO - Latvia active but seeks reassurance -------------- ¶4. (C) NATO lies at the core of Latvian security policy. In the wake of events in Georgia last summer, Latvia remains interested in further demonstrations of commitment to Article 5. They want to know how we are going to breathe life into the recent summit language on the American commitment to Latvia. He will likely raise further engagement with Central Asia as a key to stability in Afghanistan, and highlight Latvian efforts in this regard. Riekstins will also point out Latvia's increasing participation in Afghanistan, and its role in the Northern Distribution Network (NDN) bringing non-lethal supplies to the region, as demonstrations of its dedication to NATO. ¶5. (U) Latvia is a reliable friend and ally, but its economic situation is straining its ability to play an active role. Through multiple deployments in Iraq, and now Afghanistan, Latvia has demonstrated its support for trans-Atlantic security missions. It has taken casualties in both operations, most recently when 2 Latvians were killed fighting alongside Americans on May 1. Budget cuts have caused the Latvians to cease participation in the NATO mission in Kosovo, the EU mission in Bosnia and the NATO Response Force. The government says it is committed to remaining in Afghanistan, where it has 130 troops serving in the Norwegian-led Meymaneh PRT, and an additional 30 troops leading a joint OMLT with the Michigan National Guard in RC-East. ¶6. (U) The Government of Latvia has been active in supporting democracy and rule of law issues in ex-Soviet nations in the region, particularly Belarus, Ukraine, Georgia and Moldova. It has had to eliminate all funding for these programs due to the economic situation, but is still actively seeking ways to demonstrate its commitment to the cause and show leadership in its "neighborhood." You should thank them for their efforts and encourage them to maintain their dedication to NATO and building the capacity of the other post-Soviet republics. Other issues -------------- ¶7. (U) Jewish Property Restitution: While Latvia has an overall good record on property issues, the restitution of a remaining number of communal and heirless private properties has been slowed by a combination of politics, economics, and even some anti-Semitism. A 2006 agreement on this issue fell apart at the last minute. The government has created a task force to study the issue, but we have repeatedly urged that they engage more seriously with the Jewish community. ¶8. (U) Energy security: Latvia relies entirely on Russia for natural gas imports, and will be losing a source of imported electricity when the nuclear plant at Ignalina, Lithuania is shut at the end of 2009. Thanks to large underground natural gas storage facilities, and a relatively good relationship with Russia on energy issues, Latvian gas supplies are not an immediate concern. The GOL has made plans to build new electrical generation facilities to help with short term needs, and is seeking construction of links to the Nordic electrical grid in the longer term. Plans for a shared Baltic/Poland nuclear plant to replace Ignalina have not progressed. There have been some positive signs in planning regional inter-connections, but we should continue pressing the urgency of moving past general agreements and into implementation. Riekstins and the MFA -------------- ¶9. (U) Like many GOL institutions, the MFA faces severe cutbacks to comply with austerity requirements. The Ministry has just cut overseas staffing from 466 to 296 employees. Staffing levels in Riga will be similarly reduced, and salaries for remaining employees slashed. Their Mission in Washington will not escape these cuts ) and positions in their Defense Attache Office and their Foreign Commercial Service are also being eliminated. The MFA will be hard-pressed to meet all its responsibilities given the cutbacks. ¶10. (C/NF) Riekstins is a career diplomat and a dedicated supporter of trans-Atlantic ties. He spearheaded Latvia's efforts to join NATO and subsequently served as Ambassador to the United States. Riekstins himself is in a difficult position politically. In gaining his position as Minister of Foreign Affairs, he joined the People's Party, which has since fallen on hard times. Though the party still holds the most seats in the parliament, they have been saddled with a large share of the blame for Latvia's economic crisis. As a result, they performed very poorly in recent municipal and European Parliament elections and their future looks bleak. Riekstins is one of two official candidates to be Latvia's next EU commissioner, but his prospects for the job are unclear. ROGERS