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OO RUEHDBU RUEHFL RUEHKW RUEHLA RUEHNP RUEHROV RUEHSL RUEHSR
DE RUEHRA #0038/01 0221300
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O 221300Z JAN 10
FM AMEMBASSY RIGA
TO RUEHC/SECSTATE WASHDC IMMEDIATE 6249
INFO RUEHZL/EUROPEAN POLITICAL COLLECTIVE IMMEDIATE

C O N F I D E N T I A L SECTION 01 OF 02 RIGA 000038 
 
SIPDIS 
 
E.O. 12958: DECL: 01/21/2020 
TAGS: PREL PGOV ECON LG
SUBJECT: LATVIAN GOVERNMENT SURVIVES POPULIST CHALLENGE 
 
Classified By: PolEconCounselor Brian H. Phipps, Reasons 1.5 (B) and (D 
) 
 
 ¶1. (C) Summary:  Latvia's government survived a challenge 
from within the ruling coalition in a 54-22 parliamentary 
vote on January 21.  The populist People's Party sought to 
block a resolution affirming the government's ability to 
negotiate loans with international lenders, particularly the 
IMF, and, instead, to pass a law placing unworkable 
restrictions on such negotiations.  While this was not 
technically a vote of confidence, if the People's Party had 
been successful, the political and economic consequences 
would have been severe, and would have reversed a growing 
sense of confidence that the Latvian economy is pulling out 
of its two-year nosedive.  The main opposition parties 
exhibited statesmanship (or at least strategic political 
thinking), one largely supporting the government and one 
stepping aside from the fight.  Further political crises may 
still occur between now and October elections, but the Prime 
Minister and Finance Minister, both of the center-right New 
Era Party, now find themselves on relatively stable ground. 
 
 
Populism R Us 
------------- 
 
¶2. (C) The People's Party, the largest member of the 
coalition with 19 seats in Parliament, is facing political 
extinction.  The party performed exceedingly poorly in June 
2009 local and European elections.  The return of the 
superwealthy three-time former Prime Minister Andris Skele to 
party leadership has failed to revive the party's fortunes in 
public opinion polls.  Faced with the possibility of 
exclusion from Parliament by failing to meet the five-percent 
threshold in October 2010 elections, the party has stepped up 
its populist message, objecting to the tax hikes and budget 
cuts demanded by the terms of international lenders, 
including the IMF, the EC, and Nordic states. 
 
¶3. (C) While several of the People's Party ministers within 
the cabinet, including Foreign Minister Maris Riekstins, have 
continued to perform their duties professionally and 
responsibly, Justice Minister Mareks Seglins and Local 
Government and Regional Development Minister Edgars Zalans 
have been disruptive and obstructionist, publicly denouncing 
Prime Minister Valdis Dombrovskis and Finance Minister Einars 
Repse and storming out of a cabinet meeting.  Other coalition 
members have grown exasperated by the People's Party, but 
kicking the party out of the cabinet would leave the 
government several votes short of a majority.  For its part, 
the People's Party continued to enjoy its access to the 
levers of patronage and power within the cabinet. 
 
Showdown 
-------- 
 
¶4. (C) When Latvia's Constitutional Court ruled in December 
2009 that earlier pension cuts had not been sufficiently 
justified by the government, it also ruled that the 
government needed an explicit mandate from Parliament to 
negotiate for loans. The Finance Ministry drafted a 
resolution allowing them a broad mandate, but the People's 
Party proffered a draft law of its own that would require 
separate parliamentary votes on each amendment to 
international lending agreements, prohibit further tax 
increases, and require parliamentary approval for the 
restructuring of commercial banks.  For a while, it appeared 
that the People's Party was merely posturing, and was 
unlikely to force a vote which could bring down the 
government, scuttle the agreements with the IMF and others, 
cause major economic turmoil, and take the party out of its 
share of power.  Political Commentator Pauls Raudseps told us 
early on the morning of January 20 that the party was merely 
seeking attention and leverage and was not willing to go to 
the "final extreme." 
 
¶5. (C) By the afternoon of January 20, it became clear that 
the People's Party was indeed serious. The PM's economic 
advisor (please protect) told us that he had received 
panicked calls from the Treasury throughout the day that 
sufficient reserves were unavailable to defend Latvia's 
currency adequately from heavy devaluation pressure, should 
the governmen resolution fail and international confidence 
be lost.  The advisor thought that while the resolution might 
survive, there was a good chance that Finance Minister Repse 
would find his report on the IMF agreement rejected by 
Parliament.  Such a rejection, while not strictly a vote of 
no confidence, would make it difficult for Repse to stay on, 
and would weaken the government's credibility.  That evening, 
an ashen-faced IMF resident representative privately shared 
commiseration that "a pack of jokers" was about to undo all 
the hard work he and the Finance Ministry had done to put 
Latvia on the path to recovery. 
 
RIGA 00000038  002 OF 002 
 
 
 
Saved by the Enemy 
------------------ 
 
¶6. (C) When the smoke finally cleared the next day, the 
government resolution was left standing, and the People's 
Party found itself out in the cold, supported only by the 
five votes of far-left, predominately ethnic-Russian "For 
Human Rights in a United Latvia" party.  Former Prime 
Minister Andris Berzins of the opposition Latvia's First 
Party/Latvia's Way apparently put country (or at least 
long-term ambitions) ahead of short-term partisan politics 
and delivered seven of his party's 10 votes to vote for the 
resolution and five to support the Finance Minister, who 
sruvived a 52-21 vote. Former Prime Minister Ivars Godmanis 
(also from this party) told us that the party had no desire 
to be in government under current economic conditions.  He 
and Berzins had counseled the party's chairman, Ainars 
Slesers, that now was not the time to bring the government 
down at that it was better to wait until October, in the 
expectation that the rival People's Party would be driven out 
of Parliament entirely. The leftist and predominately 
ethnic-Russian Harmony Center opposition party stood apart 
from the fray, casting "null ballots" after winning some 
minor semantic changes in the language of the resolution, 
also recognizing that it was better to wait until October 
elections than to play into Andris Skele's hands. 
 
¶7. (C) Comment:  While the current government is far from 
home free, and challenges will almost certainly arise again 
before October elections, the Prime Minister and Finance 
Minister are both in a more solid position for surviving this 
long-threatened assault by the People's Party.  However, 
there are almost certainly some political favors they now owe 
Berzins and the leaders of Harmony Center. 
GARBER