VZCZCXRO6322
OO RUEHIK
DE RUEHRA #0508 2820644
ZNR UUUUU ZZH
O 090644Z OCT 09
FM AMEMBASSY RIGA
TO RUEHC/SECSTATE WASHDC IMMEDIATE 6090
RUEATRS/DEPT OF TREASURY WASHDC IMMEDIATE
INFO RUEHZL/EUROPEAN POLITICAL COLLECTIVE PRIORITY

UNCLAS RIGA 000508 
 
SENSITIVE BUT UNCLASSIFIED 
 
SIPDIS 
 
E.O. 12958:N/A 
TAGS: EFIN ECON ECIN PGOV PREL SW LG
SUBJECT: LATVIA: 2010 BUDGET DEMARCHE RECOMMENDATION: DEPARTMENT 
GUIDANCE REQUESTED 
 
REF: A. Meyer-Garber 10/8/09 e-mail; B.RIGA 494, C. RIGA 484 D. 
STOCKHOLM 632, E. RIGA 238, F. RIGA 191 
 
¶1. (U) This is an action request. 
 
¶2. (SBU) Post seeks Department concurrence on a draft demarche to be 
delivered to appropriate GOL officials (including the Prime 
Minister) regarding Latvia's 2010 budget.  The demarche will urge 
the government of Latvia to abide by its signed commitments to the 
International Monetary Fund and the European Commission and pass a 
credible 2010 budget that reduces the fiscal deficit by 4 percent of 
GDP or LVL 500 million (USD 1 billion). 
 
¶3. (SBU) The following are our recommended points for the demarche: 
 
-- The U.S. will continue to support Latvia during these very 
difficult economic times and we pledge to work with Latvia as it 
seeks to return to sustainable economic growth. 
 
-- We understand that Latvia is facing some very difficult choices 
and legitimate concerns about the impact of additional expenditure 
cuts and/or tax increases envisioned in the 2010 budget. 
 
-- We welcome the significant progress made so far. 
 
-- Nonetheless, we strongly urge the government of Latvia to abide 
by its commitments to the International Monetary Fund and the 
European Commission and pass a 2010 budget that reduces the fiscal 
deficit by 4 percent of GDP or 500 million LVL. 
 
-- If Latvia does not honor its commitments it will be difficult to 
support further disbursements.  The credibility of Latvia's program 
and its exit to successful euro adoption is at stake. 
 
-- Failure to abide by these commitments would undermine confidence 
in the government of Latvia to implement the program consistent with 
its stated goals and could lead to unintended consequences, 
including further downgrading of Latvian debt, immediate calls on 
its loans and even a possible run on Latvia's currency. 
 
-- The agreement reached with your government clearly states that 
the 500 million LVL in budget adjustment for 2010 should not be 
achieved only through expenditure cuts. This would be too hard on 
society, particularly for low-income families. We consider it 
important to safeguard social safety nets as agreed with the IMF and 
EC, to ensure a fair distribution of the adjustment on the 
population. 
 
-- Although Latvia's adjustments have been painful, there appears to 
be some renewed, but cautious interest in Latvia from investors. 
 
-- Changing course now could undermine this progress. 
 
-- As Latvia implements fair and equitable policies to ensure 
long-term fiscal stability and eventual euro adoption, the U.S. will 
continue to search for opportunities to strengthen our bilateral 
economic relationship through trade and investment opportunities. 
 
-- Finally, we would like to reiterate our previous offers of 
technical assistance in support of these difficult budget decisions. 
 
 
#GARBER