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OO RUEHDBU RUEHFL RUEHKW RUEHLA RUEHNP RUEHROV RUEHSL RUEHSR
DE RUEHRA #0576/01 3371510
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O 031510Z DEC 09
FM AMEMBASSY RIGA
TO RUEHC/SECSTATE WASHDC IMMEDIATE 6168
INFO RUEHZL/EUROPEAN POLITICAL COLLECTIVE IMMEDIATE

C O N F I D E N T I A L SECTION 01 OF 02 RIGA 000576 
 
SIPDIS 
 
E.O. 12958: DECL: 12/02/2019 
TAGS: PREL PGOV ECON MOPS LV
SUBJECT: LATVIA: DAS QUANRUD BOLSTERS ENGAGEMENT 
 
REF: A) SECSTATE 123222 B) SECSTATE 120288 C) 
     SECSTATE 120807 D) RIGA 573 E) RIGA 567 F) 
     RIGA 566 
 
Classified By: Ambassador Judith Garber, reasons 1.5 (B) and (D) 
 
¶1. (C) Summary.  Latvia's political leadership firmly and 
unequivocally supports President Obama's Afghanistan policy, 
and will maintain its own caveat-free troop contribution in 
the face of severe economic crisis at home.  The Government 
of Latvia appreciates USG assurances of support on NATO 
collective security, and will approach relations with Russia 
pragmatically, without sacrificing principles.  Within the 
EU, Latvia will support the U.S. position on possible Iranian 
sanctions.  Both the government and leading private sector 
elements believe that Latvia's economic growth will resume 
very slowly in the second half of 2010, and that no powerful 
engines or formulas exist for spurring robust growth in the 
near future.  While large gas storage facilities will ensure 
Latvian energy security over the coming winter, long-term 
challenges in energy diversification, and in fighting 
corruption are both recognized as considerable. End Summary. 
 
 
¶2. (SBU) EUR DAS Pamela Quanrud visited Latvia November 30 - 
December 2.  She met the Minister of Finance, and high-level 
officials from the Office of the President, the Ministry of 
Foreign Affairs, the Ministry of Defense, and Ministry of 
Economics.  Quanrud also met with the Foreign Affairs 
Committee of Parliament, the Chair of the Latvian Chamber of 
Commerce, and Latvian Banking Association officials.  She 
rolled out the President's Afghanistan strategy in a December 
2 press roundtable, and held an outreach activity with youth 
leaders from parties across the Latvian political-ethnic 
spectrum.  Several salient themes emerged throughout the 
meetings: 
 
Afghanistan 
----------- 
 
¶3. (C) Latvian officials expressed strong resolve in backing 
President Obama's way forward in Afghanistan and Pakistan 
(refs A, C and F), noting that despite a massive 18.7% 
third-quarter year-on-year drop in GDP, Latvia would maintain 
its presence of 175 caveat-free troops in Afghanistan.  No 
substantial Latvian troop increases were possible, but 
Latvian officials undertook to encourage other European 
powers to contribute more, commensurate with their economic 
capabilities.  DAS Quanrud expressed appreciation for 
Latvia's sustained contribution, firmly at the upper end of 
the NATO scale in relation to Latvia's population and GDP. 
Latvian interlocutors, particularly in Parliament, were eager 
to see Latvian firms compete for supply contracts for the 
thousands of container loads of non-lethal equipment heading 
through Riga port and on Latvian railways en route to 
Afghanistan.  The MFA indicated they will need "messages of 
reinforcement" from the U.S. on Afghanistan if other allies 
begin to leave early.  The MFA also expressed the hope that 
better U.S.-Uzbek relations could speed the transit of 
supplies for Afghanistan through Central Asia. 
 
NATO 
---- 
 
¶4. (C) Latvian officials continued to assure us that they 
wanted no public discussion of a NATO Contingency Plan for 
the Baltics, but that they desired smooth, quiet progress 
toward that end, particularly through the Military Committee. 
 DAS Quanrud underscored that the U.S. commitment to Article 
5 of the NATO Treaty is the bedrock of our foreign policy. 
She stated our belief that NATO needs to have in place all 
the resources necessary to support Article 5.  While adequate 
planning is one aspect, other factors, such as capabilities, 
readiness and infrastructure, were also critical.  Latvian 
officials appreciated these reassurances, and hoped to hear 
more about our plans in the near 
future. 
 
Russia and its Neighbors 
------------------------ 
 
¶5. (C) Latvian Presidency and MFA officials articulated a 
pragmatic, yet principled approach to engagement with Russia. 
 MFA officials expressed concern about Russian hesitation to 
conclude agreements on investment protection and 
double-taxation.  The MFA was as puzzled by Medvedev's offer 
of what they considered an unserious draft European Security 
Treaty, as they were by strange Russian behavior at the 
NATO-Russia Council. MOD officials hoped that the High North 
would be a good test ground for pragmatic re-engagement with 
Russia -- thanks to the lack of historical tensions and 
legacy issues in this region.  The MFA also expressed strong 
commitment to participation in the Eastern Partnership, and 
 
RIGA 00000576  002 OF 002 
 
 
supported Turkey's eventual accession to the EU. 
 
Iran 
---- 
 
¶6. (C) Presidency and MFA officials alike expressed support 
for President Obama's approach on Iran (refs B and E), and 
hoped that the Europeans could support that position with 
greater unanimity.  Presidency officials noted they had 
studied the impact of sanctions on Latvia, and determined 
they would be minimal.  We were assured that AirBaltic would 
not establish a direct route from Riga to Tehran.  With 
regard to sanctions, the MFA noted that while "there were two 
schools of thought within the EU on sanctions," Latvia was in 
the pro-sanctions camp. 
 
The Budget 
---------- 
 
¶7. (SBU) Finance Minister Einars Repse met DAS Quanrud 
November 30, on the eve of the most difficult budget debate 
of Latvia's post-independence history. (ref D) Tax rate 
increases, new taxes, and spending cuts were painful, Repse 
recognized, but necessary to demonstrate Latvia's credibility 
to international lenders.  Repse acknowledged that the 2011 
budget would also require further cuts, and that spending 
increases would not be likely until 2013. DAS Quanrud assured 
the Minister and other Latvian officials throughout the visit 
that Latvia's hard choices would earn long-term dividends in 
investor confidence. 
 
The Economy 
----------- 
 
¶8. (SBU) Latvian officials and private sector figures 
recognized that Latvia could not revert to growth based on 
domestic consumption, and that exports were essential.  While 
wage decline has made export-oriented investment more 
attractive, interlocutors recognized that a slow global 
economy would make Latvia's future growth gradual.  Despite 
the health of the transportation sector (particularly 
railways and ports), few real engines for sustained growth 
could be readily identified.  Bankers were particularly 
gloomy about the limited prospect for anything other than 
slow growth in the years ahead, and thought Euro accession 
was unlikely before 2015, due to difficulties in meeting 
Maastricht deficit and debt criteria. 
 
Energy 
------ 
 
¶9. (SBU)  Economics Ministry officials claimed that Latvia 
would not suffer power shortages as a result of the Ignalina 
nuclear power plant closure in Lithuania, and were confident 
that large Latvian gas storage facilities will protect Latvia 
from gas shut-offs from Russia.  The officials believed that 
a new coal/biomass power plant under construction in Liepaja, 
the NordBalt undersea electric cable, and further advances in 
renewables technology would contribute to greater diversity 
of energy supply over time. They admitted that greater 
predictability, transparency and stability in setting tariff 
rates and policy were needed to attract foreign investors to 
the energy sector. 
 
Transparency 
------------ 
 
¶10. (SBU) The Latvian Chamber of Commerce and Industry was 
particularly concerned about the problem of corruption, and 
the prospect of "state capture" by corrupt "oligarchs" in 
October 2010 elections.  They were considering establishing 
an anti-corruption code of conduct for a critical mass of 
Latvian businesses to adopt.  The Minister of Finance 
expressed the hope that careful monitoring, changes in 
revenue service management, and public intolerance for 
corruption in a time of economic crisis, could combat the 
corruption problem. 
 
 
¶11. (C) Comment:  This visit did much to reinforce our core 
embassy goal of "Keeping Latvia Engaged."  The unusual 
confluence of the historic Presidential decision on 
Afghanistan, the passage of a crucial and contentious Latvian 
budget, and Iran's growing intransigence on its nuclear 
program all made this visit particularly well timed and 
useful.  A peaceful November 30 protest by hundreds of 
Latvian bikers unhappy at paying a new 48USD annual 
motorcycle tax was a colorful, if noisy, reminder of Latvian 
democracy in action. 
GARBER