Identifier
Created
Classification
Origin
09STATE43385
2009-04-29 16:23:00
UNCLASSIFIED//FOR OFFICIAL USE ONLY
Secretary of State
Cable title:  

ACTING A/S NELSON MEETS WITH LATVIAN FINANCE

Tags:  ECON EFIN PGOV LG 
pdf how-to read a cable
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RUEHLN RUEHLZ RUEHNP RUEHPOD RUEHROV RUEHSK RUEHSR RUEHVK RUEHYG
DE RUEHC #3385 1212205
ZNR UUUUU ZZH
R 291623Z APR 09
FM SECSTATE WASHDC
TO RUEHRA/AMEMBASSY RIGA 1325
INFO EUROPEAN POLITICAL COLLECTIVE
RUEATRS/TREASURY DEPT WASHINGTON DC 0339
UNCLAS STATE 043385 

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SIPDIS

E.O. 12958: N/A
TAGS: ECON EFIN PGOV LG
SUBJECT: ACTING A/S NELSON MEETS WITH LATVIAN FINANCE
MINISTER

UNCLAS STATE 043385

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E.O. 12958: N/A
TAGS: ECON EFIN PGOV LG
SUBJECT: ACTING A/S NELSON MEETS WITH LATVIAN FINANCE
MINISTER


1. (SBU) In his April 26 meeting with Acting A/S David
Nelson on the margins of the IMF/World Bank Spring Meetings,
Finance Minister Einars Repse outlined Latvia's plans for a
7% of GDP fiscal deficit in 2009 and 3% deficit in 2010 in
hopes of meeting IMF conditions and establishing a
sustainable basis for Latvia's economic recovery. Repse
argued that the 7% deficit for 2009 is realistic as Latvia
has only half of 2009 remaining to react to the worsened
economic situation. Additionally, a 7%-3% deficit scenario
as opposed to the IMF-proposed 5%-5% deficit scenario allows
Latvia to remain on track for Euro accession by 2012 (even as
he noted his concerns about the Euro's stability). Other
than non-negotiable expenses, like international debt
repayments and EU payments, and wages (which were cut by 15%
and subsequently an additional 20%),Repse plans to cut all
other government expenditures by 40% to reach a 7% deficit
target in 2009. This may include closing schools, hospitals
and perhaps the Latvian mission in Afghanistan. Whether the
IMF or European Commission (EC) will back Latvia's proposal
is still unclear. He said other donors were waiting on IMF
approval before providing financing, as IMF financing
constitutes only one-seventh to one-tenth of the total
financing. He said the EC, Sweden and the Czech Republic,
have offered Latvia a total of 7.5 billion Euros over 3 years.


2. (U) Repse rejected the idea of Euroization outside of
ERM-II, saying it was important for Latvia's Central Bank to
have a voice within the European Central Bank system and to
not be a second-tier country. Rather, he pointed to the
"positives" in Latvia's current situation, including the
beneficial effects of wage decreases, which help Latvia's
competitiveness, and the need for structural reform and
consolidation, especially in the health sector. He noted
that Latvia has needed structural reforms for a while but
that during the boom times, it was not politically feasible
and instead the government and country went on a spending
spree. Now, while it is painful, he argued that reforms are
more politically acceptable, and that people understand the
need for IMF conditionality, as it is Latvia asking the IMF
for assistance.


3. (U) Repse and Latvian Ambassador to the U.S. Andrejs
Pildegovics also expressed their concern about proposed
Senate legislation that designates Latvia as an offshore
secrecy jurisdiction. They provided a copy of their letter
to Treasury Secretary Geithner on this issue and asked for
State Department assistance as well. They noted that in
their talks with Treasury, they understood that the
Administration may propose its own tax haven legislation that
does not include a "list approach" to the issue.
CLINTON