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PP RUEHDBU RUEHFL RUEHKW RUEHLA RUEHROV RUEHSR
DE RUEHRA #0148/01 0591355
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P 281355Z FEB 07
FM AMEMBASSY RIGA
TO RUEHC/SECSTATE WASHDC PRIORITY 3804
INFO RUEHZL/EUROPEAN POLITICAL COLLECTIVE PRIORITY

C O N F I D E N T I A L SECTION 01 OF 02 RIGA 000148 
 
SIPDIS 
 
NOFORN 
SIPDIS 
 
E.O. 12958: DECL: 02/28/2017 
TAGS: PGOV ECON PINR PREL SOCI CVIS KIPR LG
SUBJECT: PM KALVITIS ON BORDER, RESTITUTION, ECONOMY, AND 
THE NEXT LATVIAN PRESIDENT 
 
 
Classified By: Ambassador Catherine Todd Bailey.  Reason: 1.4 (D) 
 
¶1. (C/NF) Summary:  Latvian PM Kalvitis hopes to sign the 
border treaty with Russia March 26 - 27, and plans for speedy 
ratification, he told the Ambassador in a February 27 
meeting.  He suggested that there was a possibility of 
movement on restitution of Holocaust-era Jewish communal 
property, but called previous linkage with heirless private 
property "a strategic mistake."  Concerned about an 
overheated economy and declining long-term forecasts, he 
blamed cheap credit from foreign banks and suggested small 
steps to cool things down, but declined to take any action 
that would target a middle class enjoying the consumer 
benefits of EU membership.  Kalvitis also expressed 
frustration at what he views as a lack of US recognition for 
Latvian efforts on combating IPR violations.  Finally, he 
told the Ambassador privately that he was not interested in 
becoming President and was having no luck recruiting EU 
commissioner Piebalgs for the job.  End summary. 
 
¶2. (U) Ambassador Bailey met with Latvian PM Aigars Kalvitis 
on February 27.  Kalvitis was joined by his chief of staff, 
Maris Riekstins, and foreign policy advisor, Peteris Ustubs. 
Pol/econ chief accompanied the Ambassador as notetaker. 
Kalvitis was fighting off a cold, but in good spirits, 
especially at recent polls that continue to show his People's 
Party on top.  Kalvitis noted that his oldest son would 
likely be going to school in the US starting in fall 2007. 
The school is renowned for its development of hockey players. 
 Kalvitis is a huge fan of the sport and his son has shown 
some promise as a player. 
 
¶3. (U) The Ambassador expressed condolences over the recent 
deaths of over twenty individuals in a fire at a facility to 
care for the mentally challenged.  The Prime Minister said 
that fires are always a risk in cold weather when unsafe 
heating methods are used.  In this case, the facility did not 
have enough people on duty to assist with the evacuation of 
the residents in a timely manner.  He suggested that 
government would consider whether additional regulations were 
needed in this area. 
 
Border treaty 
--------------- 
¶4. (C) Kalvitis said that the cabinet on March 5 would take 
the decision to sign the border treaty with Russia, following 
on the authority granted by the parliament to do so.  Latvia 
and Russia continue to work on the date for signing, but the 
PM hoped it could be March 26 - 27 with Prime Ministers 
signing and Presidents "in attendance."  Kalvitis thought 
that Latvia could have the treaty ratified by June.  (Note: 
That timing would presume no challenge in the Constitutional 
Court, but we suspect such a challenge will be filed.  End 
note.) 
 
¶5. (C) The Prime Minster thanked the Ambassador for U.S. 
support for the treaty, saying that American and German 
support and engagement with Moscow had been very helpful in 
getting the process to this stage.  The Ambassador noted 
positively that all elements of the Latvian government are 
working together on this, in contrast to the 2005 experience. 
 
Restitution and March 16 
------------------------------ 
¶6. (C) Ambassador Bailey expressed our strong disappointment 
at the rejection by parliament in November of a bill to 
address restitution of Jewish communal property and heirless 
private property.  Kalvitis said that the government made "a 
strategic mistake" by combining both communal and heirless 
private property in the same bill.  He suggested that the way 
forward was to take a "step by step" approach to the communal 
properties and said he had discussed this with Speaker Emsis. 
 Following the meeting, Riekstins told the Ambassador that we 
should expect to see some movement soon on at least one of 
the 14 communal properties that had been in the bill. 
 
¶7. (C) Turning to the upcoming March 16 events commemorating 
the anti-Soviet activities of the Waffen SS unit formed in 
Latvia in WWII, Kalvitis said he expected few problems this 
year.  There would be "some meetings" but he foresaw no major 
demonstrations and no GOL officials would be near these 
events.  Also, there was less potential for public 
disturbances as the Russian Ambassador "has better control 
over the Russian groups" that often march in counter-protest 
of the March 16 events. 
 
Energy, judicial conferences 
---------------------------------- 
¶8. (C) Ambassador Bailey briefed on the Embassy's plans for 
conferences in the summer on the energy sector and in the 
area of the judiciary, the latter being headlined by Justice 
 
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Alito, and thanked the PM for his office's support for both. 
After the conference, she noted, the PM might want to 
consider the creation of an energy advisor position in his 
office to coordinate all GOL actions on this issue given its 
importance.  The PM welcomed the conferences and said the 
energy event was especially well timed.  This summer Latvia 
will have to decide on energy issues stemming from the 
upcoming closure of the Ignalina nuclear facility in 
Lithuania, including what to do to generate power between the 
closure of the current plant and the opening of the proposed 
new facility.  These issues would generate significant debate 
in Latvia and the conference could help stimulate and inform 
that debate. 
 
The economy and IPR 
--------------------------- 
¶9. (C) The Ambassador recalled the recent downgrade in 
Standard and Poors' long term economic assessment for Latvia 
and said that these assessments are influential with 
potential investors.  The PM jokingly said that the problem 
was that there was too much American investment in Latvia, 
which was overheating the economy.  Turning more serious, 
Kalvitis, a former economics minister, demonstrated a mastery 
of economic facts and figures about Latvia.  He argued that 
cheap credit, financed by banks based and earning money 
overseas (mainly Scandinavia, but also the US) was driving up 
domestic consumption and, as a result, inflation.  Private 
and corporate debt in Latvia was now roughly 100% of GDP and 
rapidly increasing.  The Prime Minister said the government 
would look to cut the budget deficit, currently under one 
percent of GDP, to under half a percent.  They would also 
impose some new excise taxes on car sales and real estate 
transactions and possibly a VAT increase on luxury items, but 
he ruled out an income tax increase.  He stressed that he 
needed to balance managing inflation with the political 
reality that Latvians expect that EU membership and other 
economic improvements should allow them to buy things they 
previously could never imagine owning. 
 
¶9. (C) PM Kalvitis raised the issue of Latvia's continued 
placement on the Special 301 watch list and the lack of a 
response to the 2006 out of cycle review.  Frustrated, he 
explained that Latvia has done good work in the area -- 
noting in particular cooperation with Microsoft on software 
piracy issues -- and spent millions on enforcement, but there 
has been no US recognition of progress.  The Ambassador 
stressed that we were pushing for an answer to the out of 
cycle review.  Pol/Econ Chief noted the good cooperation from 
the GOL in answering any questions or requests for 
information we had and praised the recent passage of 
amendments to the copyright law, which addresses several 
concerns we have expressed in the past. 
 
Visas 
------ 
¶10. (C) Getting ahead of the expected discussion on this 
issue, the Ambassador noted that the dialogue on possible 
changes to the Visa Waiver Program (VWP) had advanced to the 
Hill and that Latvia should be engaging its friends there if 
they wanted to influence the process.  She also noted that 
Latvia could usefully focus on issues such as document 
security that would almost certainly be part of any bill that 
emerged on this issue.  Kalvitis acknowledged that this is a 
political issue.  While the vast majority of Latvians qualify 
for visas, they see the need to visit the Embassy and apply 
as a sign that they are not valued as an ally and wonder why 
they are treated differently from others in the EU. 
 
Presidential Election 
------------------------- 
¶11. (C/NF) In a one-on-one after the meeting, the PM told 
Ambassador Bailey that he had no interest in becoming 
President when the parliament selects someone for the job in 
June.  His preferred choice, he claimed, is EU energy 
commissioner Piebalgs, but after two years of discussions, 
Piebalgs remains uninterested.  Kalvitis also said that while 
it is still likely to be someone from the political world, he 
has ordered a review of the files of Latvia's Ambassadors 
overseas to consider some candidates from that field. 
BAILEY