VZCZCXYZ0025
PP RUEHWEB

DE RUEHRA #0799/01 2751409
ZNR UUUUU ZZH
P 021409Z OCT 06
FM AMEMBASSY RIGA
TO RUEHC/SECSTATE WASHDC PRIORITY 3386
RUEHC/DEPT OF LABOR WASHDC
INFO RUEHMO/AMEMBASSY MOSCOW 1163

UNCLAS RIGA 000799 
 
SIPDIS 
 
SIPDIS 
 
FOR SECRETARY CHAO FROM AMBASSADOR BAILEY 
 
E.O. 12958: N/A 
TAGS: ELAB PGOV PREL OVIP CHAO ELAINE LG
SUBJECT: SCENSETTER FOR VISIT OF SECRETARY OF LABOR ELAINE CHAO 
 
 
¶1. Madam Secretary, we are extremely honored that you will visit 
Riga October 10 - 13.  Latvia today is a very different place than 
it was when you helped establish the Peace Corps program here after 
Latvia regained it's independence in 1991.  Over two years into NATO 
and European Union membership, Latvia has emerged as a significant 
international player, despite its modest population and resource 
base.  Per capita, it is one of the largest contributors to 
international military operations, with 120 soldiers in Iraq and 30 
in Afghanistan, while also serving in Kosovo.  Latvia stands out as 
a successful post-Soviet transition society and it has become a 
respected voice in the international media.  Strong memories of 
occupation and oppression strengthen Latvia's resolve to reach out 
to countries near and far struggling to move beyond authoritarian 
politics and state-dominated economies.  Latvia remains one of the 
fastest growing economies in the European Union.  Its geographic 
position offers great potential as a stepping-stone for U.S. exports 
and investors interested not only in the Baltic region itself, but 
in the Russian, other Eastern European, and Scandinavian markets. 
Latvia's support for pro-market, pro-free trade policies is 
important to the U.S., especially in European and international 
organizations. These political and economic trends provide new 
opportunities to work with Latvia in projecting support for freedom, 
democracy, and market-based prosperity. 
 
¶2. Latvia's leaders are strong partners and true friends of the 
United States.  Riga's hosting of the NATO summit in November of 
this year is a true testament to the positive view of President 
Vaira Vike-Freiberga within the alliance, and the result of her 
tenacity in her home country.  She is currently heavily focused on 
her race for Secretary General of the United Nations, where she is 
fighting an entrenched view that it is an Asian country's "turn" for 
the job.  Her term expires in July 2007 and the parliament will 
choose her successor sometime before that.  Prime Minister Aigars 
Kalvitis leads a minority government that will officially be in 
caretaker mode when you arrive, following parliamentary elections 
October 7.  One of his personal priorities is ensuring that Latvia's 
young and educated stay here and contribute to Latvia's economy 
rather than seeking jobs elsewhere.  The other ministers who will 
join you for lunch are all ones with whom I work closely on a number 
of issues.  Speaker of Parliament Ingrida Udre is very supportive of 
our initiatives to develop greater US - Latvia ties through 
public-private partnerships, including through visits by the HUMANA 
health care foundation and Ronald McDonald House Charities (which 
resulted in a decision to open a RMHC chapter in Latvia). 
 
¶3. Latvia will hold parliamentary elections on October 7, which will 
select a new parliament (Saeima) that will begin work in November. 
We can't make any exact predictions at this point, but we don't 
think the elections will result in any major shift in policy, 
especially towards the United States.  Latvia's fractured political 
landscape - 19 parties will run in the elections with between 5 and 
8 likely to win seats in parliament - means that a coalition of 3 or 
4 parties will be required to form government.  Coalition formation 
and jockeying for their own roles in the new government will be 
foremost on the minds of all the political leaders you meet and will 
likely be the dominant news stories of the day as well. 
 
¶4. Since joining the EU, Latvia has seen dramatic shifts in its 
labor force that the Latvians will want to discuss with you. 
Latvian workers have taken advantage of the free movement of labor 
provided for by the EU.  The official rate of registered 
unemployment in May 2006 was 7.0 percent, although it is 
significantly higher in rural areas.  The largest challenge that 
employers face since Latvia joined the EU is the flow of workers to 
other EU countries -- mainly Ireland and the UK.  Latvian agencies 
estimate that 30,000 to 50,000 Latvians have gone elsewhere since 
May 2004 for work, but the actual number is likely much higher than 
that.  Irish statistics show more than 30,000 Latvians working in 
Ireland alone.  Nursing, police, and construction are three of the 
sectors hardest hit by this out flow of labor.  Adapting the 
workforce to the 21st century through education and training is 
something I hope you can talk about in your remarks here. 
 
¶5.  Latvia's explosive growth, 10.2 percent in 2005, has been 
matched with high inflation, 6.7 percent last year.  Wage growth far 
outstrips gains in productivity as Latvian employers try to retain 
workers.  Latvia's low corporate and capital gains tax policies have 
also helped to fuel growth and the government's budget is in 
surplus.  But the ease of access to cheap credit, fueled in large 
part by a real estate boom, and the 4.2 million Euros in EU support 
funds Latvia will receive over the next seven years will continue 
the inflationary pressures in the economy and continue to make 
Latvia's accession to the Euro a goal for the somewhat distant 
future. 
 
¶6. Latvia's open, agile and expanding market-oriented economy 
provides U.S. companies a promising export and investment 
destination in a newly-enlarged EU.  At the same time, it creates 
the resources Latvia needs to play a more active role in NATO, the 
European Union and elsewhere.  Advancing economic prosperity and 
security, particularly through expanded opportunities for American 
business, helps broaden and solidify the U.S.-Latvian partnership. 
Latvia's total exports to the U.S. in 2005 were worth $147 million 
(or 2.7 percent of the country's total exports), and imports from 
the U.S. were valued at $96 million (or 1.1 percent of the total 
imports into Latvia).  The United States is Latvia's 13th largest 
foreign trade partner.  Latvia needs to continue to provide a level 
playing field, evidenced by efficient commercial dispute resolution, 
protection of intellectual property, and maintenance of laws and 
regulations that empower rather than hinder entrepreneurs and 
foreign investment.  Building the rule of law, reducing corruption 
and improving transparency are key parts of both our economic and 
political message in Latvia and I hope that you underscore these 
points in your meetings and remarks. 
 
¶7. In many ways, Latvia is still a land of discovery for American 
companies.  In May of this year, Embassy Riga, working with the 
Latvian Investment and Development Agency (LIDA) and the American 
Chamber of Commerce in Latvia, organized the first American 
pan-Baltic Trade and Investment Conference ever held in the region 
in Riga.  Prior to the conference, I had the opportunity to do a 
road show in New York and Chicago to speak with various business 
audiences to develop interest in coming to Latvia for the 
conference.  In the end, over fifty businesspeople representing 
forty-three companies travelled from the United States to 
participate in this event.  President Vike-Freiberga opened the 
conference to an audience of approximately 150 businesspeople from 
the U.S. and the Baltic states.  She also held private meetings on 
the margins with a number of the U.S. businesses that attended.  At 
the conclusion of the mission, GE Money announced that it would 
expand its presence in Latvia by opening a Nordic Regional Service 
Center in Riga.  In addition, American company Strategic Staffing 
Solutions announced plans to open an international office in Riga 
where they plan to employ 60 people.  We are currently in 
discussions with LIDA regarding a follow up trade event for 2007. 
 
¶8. While here, you will visit two American companies that do 
business in Latvia as well as speak to the American Chamber of 
Commerce.  One of the companies you will visit, GE Money, is a good 
example of an American company taking advantage of the opportunities 
provided by Latvia's rapid growth.  GE Money already has a loan 
portfolio of over $110 million and should reach $125 million by the 
end of 2006.  In November 2006, GE Money opened its new Nordic 
Regional Service Center, which you will visit, which focuses on 
operations (processing paperwork), finance, and risk analysis.  This 
service center represents an additional investment of about 
$800,000.  It currently employs about 300 people in Latvia and plans 
to hire more as it expands from the consumer finance area into 
retail banking.  The other U.S. company you will visit is Coca-Cola, 
which is a contrast to the otherwise pro-business environment here. 
In August, the Latvian government banned the sales of products 
contianing certain ingredients from schools, which harmed 
Coca-Cola's business by suggesting that the ingredients were 
themselves unhealthy.  Coca-Cola had attempted to work with the 
Latvian government to address their legitimate concerns about 
childhood obesity and to voluntarily substitute products for sale in 
the schools as well as help establish after-school and weekend 
sports programs.  Unfortunately, election year politics won the day 
and the ban went forward. 
 
¶9. Latvia has been attempting to develop itself as a regional 
banking and finance center.  However, in the post-9/11 world the 
U.S. government expressed serious concern that it was developing 
this sector without the necessary oversight to prevent it from being 
used as a conduit for money laundering for organized criminal 
activity and potentially for financing terrorist activities and 
organizations.  In May 2005, the Department of the Treasury 
designated two Latvian banks as institutions of "primary money 
laundering concern" under section 311 of the Patriot Act and to 
prohibit them from having any dealings with U.S. financial 
institutions.  The Latvian government and regulatory agencies worked 
very closely with us for a year to enhance their legislative and 
regulatory framework to address our concerns.  In July of this year, 
Treasury decided to clear one bank and continue the sanctions 
against the second.  While highlighting the robust actions taken by 
the government, treasury remained concerns about alleged personal 
links between the ownership of the second bank and organized 
criminal organizations. 
 
¶10. There is one political theme that I hope you can touch on while 
you are here and that is the issue of tolerance, inclusion and 
respect for others.  One of the legacies of Soviet rule is a 
distrust of differences and a tendency to focus on the past rather 
than looking forward.  This manifests itself in a variety of ways. 
There is still tension between ethnic Latvians and the sizable 
ethnic Russian population, particularly over language issues. 
Attacks on individuals of color, including an Embassy family member, 
attributable to racism are too often chalked up to "hooliganism" or 
"boys being boys."  Attempts by Riga's small gay community to hold a 
pride march were met by violence and the interior minister said that 
securing the event would be a bigger security challenge than the 
NATO Summit.  When President Bush was here in May 2005 he said, 
"Whatever the historical causes, yours is now a multi-ethnic society 
-- as I have seen on my visit. No wrongs of the past should ever be 
allowed to divide you, or to slow your remarkable progress. While 
keeping your Latvian identity and language, you have a 
responsibility to reach out to all who share the future of Latvia. A 
welcoming and tolerant spirit will assure the unity and strength of 
your country. Minorities here have a responsibility as well -- to be 
citizens who seek the good of the country in which they live."  Your 
assistance in reinforcing this message will help us a lot. 
 
¶11. My Embassy team and I believe that your visit will highlight to 
our Latvian host the strength of our bilateral relationship, not 
just for today but as this great partnership builds in the years to 
come, and will open up discussions on some of the economic and 
social issues that are so important to Latvia's future success.  It 
is an honor to have you visit this great country that serves as a 
very strong partner.  Best, Cathy. 
 
Bailey