LATVIAN PM ASSURES AFGHAN CONTRIBUTION SAFE,

C O N F I D E N T I A L RIGA 000494 SIPDIS DEPT FOR USED IMF E.O. 12958: DECL: 10/02/2019 TAGS: PREL PGOV ECON EFIN MARR LG SUBJECT: LATVIAN PM ASSURES AFGHAN CONTRIBUTION SAFE, PLEADS FOR FLEXIBILTY ON BUDGET WITH IMF REF: RIGA 00474 (NOTAL) Classified By: AMBASSADOR JUDITH GARBER FOR REASONS 1.4 B AND D ¶1. (C) Latvian Prime Minister Valdis Dombrovskis assured Ambassador Garber that military budget cuts would be limited to ending "non-core activities" and postponing some procurements. "We intend to continue our engagement in Afghanistan as a priority," he remarked, noting that Latvia would seek to expand cargo shipment activity via Riga port to Afghanistan. Construction of a new military airport in Lielvarde would also continue. This assurance was in repsonse to a September 29 letter to the Prime Minister from the Ambassador, appealing for the maintenance of a viable and professional military. This letter was sent due to reliable reports that drastically deep cuts in military personnel were under consideration (reftel). ¶2. (C) The Prime Minister used the occasion to plead for flexibility and patience in meeting the IMF criterion of 8.5 percent of GDP for Latvia's budget deficit. While the IMF stance was initially firm, he said, there was now some "readiness for discussion". 275 million lats in fresh budget cuts and 49 million lats in new revenues still left the 2010 Latvian budget 175 million lats over the limit, according the the IMF methodology of deficit calculation. He asked that the IMF consider 8.5 percent as a target, rather than a maximum. According to Latvian and EU methodology, "we are pretty much there", he argued. He noted that the closing of schools and hospitals created "high social tension", teachers were preparing to strike, and 2000 police officers had signed an open letter objecting to salary cuts. He said political stability was under threat. "If you squeeze it too hard, it will just break apart." ¶3. (C) The Ambassador thanked the Prime Minister for Lativa's contribution to NATO efforts in Afghanistan, expressed understanding that some defense cuts would be required, and undertook to relay the PM's appeal on the budget deficit. She noted that Latvian Finance Minister Repse would be meeting with Treasury officials in Istanbul on Monday, October 5. GARBER