POLITICAL MANEUVERING LIKELY TO STAGNATE LATVIA

C O N F I D E N T I A L SECTION 01 OF 02 RIGA 000050 NOFORN SIPDIS E.O. 12958: DECL: 01/23/2019 TAGS: PGOV ECON EFIN LG SUBJECT: POLITICAL MANEUVERING LIKELY TO STAGNATE LATVIA FOR FORESEEABLE FUTURE REF: RIGA 33 Classified By: Charge' d'affaires, a.i., Bruce D. Rogers. Reason: 1.4 (d) ¶1. (C/NF) Summary: Latvia lacks a clear way forward as it seeks to address its deepening economic and political troubles. The next step is talks among all parties in parliament brokered by the President to consider possibilities for a new government, but personality differences and the question of what role ethnic Russians should play will make the talks tough. Changes in the cabinet are a given, but the future of PM Godmanis remains unclear. No one else wants the job. The President clearly does not want to dissolve parliament but the expectation among the public may leave him no choice. Even with no parliamentary elections, the best situation is a political muddling through at least until local government elections June 6. As the focus has been on political issues, necessary decisions on the economy are being postponed. End summary. ¶2. (U) Following the demonstrations and violence of January 13 and President Zatlers' ultimatum that he would initiate a dissolution of parliament if certain things were not done by March 31, politicians have been jockeying for position. People's Party, still the largest in parliament, proposed that parliament should dissolve itself, although there is no legal mechanism to do so. They calculate this will get them back in the public's good graces and hope it could stem their losses in new elections. Other coalition parties have called for changing government, and one of them wants a new Prime Minister. ¶3. (C/NF) Conversations with members of the coalition reveal no clear strategy for next steps. The four parties are increasingly pursuing individual goals and sniping at each other. Opposition parties have tried to establish a common front, but in conversations it is clear that deep personality differences and minor policy differences are blocking effective cooperation. All parties put the chances of new elections at fifty percent or higher, so they are wary of taking steps, including cooperating with less popular parties, which could potentially hurt them at the polls. ¶4. (C/NF) President Zatlers is the person who seems least convinced that new elections will occur, despite being the person who made the possibility very real with his ultimatum. His chief of staff, Edgars Rinkevics, told us that the President means what he has said publicly - he is prepared to dismiss Saeima if they don't meet his goals, but he will do everything he can to avoid that happening. The next step in the process is for all parliamentary parties to meet on January 26 at the President's offices under his auspices to see what areas of agreement there might be. Rinkevics believes these meetings will not immediately produce a new coalition, but will allow a focus on areas of agreement between the parties that could lead to a new coalition. ¶5. (C/NF) Any discussions on a new government will center on two main points; who should be the next Prime Minister and whether or not to bring ethnic Russians into government. PM Godmanis has said that he is willing to step down, but no one else has stepped forward saying they are willing to take the job. Suggestions of individuals outside of politics for PM, such as state auditor Sudraba, have been rejected by the named individuals. Given the enormity of the challenges Latvia faces, no one wants the job. At this point the odds are about even that Godmanis will remain, even with a different or expanded coalition. If he does not, there is no clear favorite for the job. The far more difficult issue will be whether to bring Harmony Center, which gets most of its support from ethnic Russians, into government. Some politicians and experts say that this time of crisis is exactly the right time to cross this political Rubicon, while others calculate that an appeal to Latvian nationalism is more effective politically in these times. President Zatlers, who was adamantly opposed in 2007 to brining Harmony Center into government, has decided that all options need to be on the table, according to Rinkevics. What will happen with this party is probably the hardest thing to predict at this point. ¶6. (C/NF) Whatever happens in the talks between the parties, there will almost certainly be changes in the cabinet. The PM remains determined to cut six ministers from cabinet. The President's call for "new faces" with "foreign language skills, who can well represent Latvia" is an unveiled reference to the need to replace the finance and defense ministers, which we think is likely. In any scenario of change, we believe the odds of FM Riekstins remaining on the job are quite high. RIGA 00000050 002 OF 002 ¶7. (C/NF) Under any circumstances, we believe Latvia will at best muddle through the coming months. Even if the parties can find areas of common agreement and establish a new or expanded coalition able to fulfill many of the President's tasks, finding the 67 votes in parliament to amend the constitution to allow the public to initiate a dismissal of Saeima will be very hard. And even if all the President's tasks are met, many in the public have already become excited at the prospects of new elections and it is unclear how they will react if they do not happen. Additionally, parties will be jockeying for position for the June 6 local government elections, which will make cooperation even harder. It is those elections which will provide the first hope of any stability. Once they are over parties will have a sense of their relative standing with voters and it could lead to a more stable government. But that is a long way away and a lot of things could happen along the way to change the calculus. In the meantime, full implementation of the austerity and restructuring measures required by the international assistance package and vital to economic recovery will be delayed. ROGERS