Viewing cable 09STATE43385
Title: ACTING A/S NELSON MEETS WITH LATVIAN FINANCE

IdentifierCreatedReleasedClassificationOrigin
09STATE433852009-04-29 16:23:00 2011-08-30 01:44:00 UNCLASSIFIED//FOR OFFICIAL USE ONLY Secretary of State
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RR RUEHAG RUEHAST RUEHDA RUEHDBU RUEHDF RUEHFL RUEHIK RUEHKW RUEHLA
RUEHLN RUEHLZ RUEHNP RUEHPOD RUEHROV RUEHSK RUEHSR RUEHVK RUEHYG
DE RUEHC #3385 1212205
ZNR UUUUU ZZH
R 291623Z APR 09
FM SECSTATE WASHDC
TO RUEHRA/AMEMBASSY RIGA 1325
INFO EUROPEAN POLITICAL COLLECTIVE
RUEATRS/TREASURY DEPT WASHINGTON DC 0339
UNCLAS STATE 043385 
 
C O R R E C T E D   COPY - CAPTION ADDED 
SENSITIVE 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: ECON EFIN PGOV LG
SUBJECT: ACTING A/S NELSON MEETS WITH LATVIAN FINANCE 
MINISTER 
 
 ¶1.   (SBU) In his April 26 meeting with Acting A/S David 
Nelson on the margins of the IMF/World Bank Spring Meetings, 
Finance Minister Einars Repse outlined Latvia's plans for a 
7% of GDP fiscal deficit in 2009 and 3% deficit in 2010 in 
hopes of meeting IMF conditions and establishing a 
sustainable basis for Latvia's economic recovery.  Repse 
argued that the 7% deficit for 2009 is realistic as Latvia 
has only half of 2009 remaining to react to the worsened 
economic situation.  Additionally, a 7%-3% deficit scenario 
as opposed to the IMF-proposed 5%-5% deficit scenario allows 
Latvia to remain on track for Euro accession by 2012 (even as 
he noted his concerns about the Euro's stability).  Other 
than non-negotiable expenses, like international debt 
repayments and EU payments, and wages (which were cut by 15% 
and subsequently an additional 20%), Repse plans to cut all 
other government expenditures by 40% to reach a 7% deficit 
target in 2009.  This may include closing schools, hospitals 
and perhaps the Latvian mission in Afghanistan.  Whether the 
IMF or European Commission (EC) will back Latvia's proposal 
is still unclear.  He said other donors were waiting on IMF 
approval before providing financing, as IMF financing 
constitutes only one-seventh to one-tenth of the total 
financing.  He said the EC, Sweden and the Czech Republic, 
have offered Latvia a total of 7.5 billion Euros over 3 years. 
 
¶2.    (U) Repse rejected the idea of Euroization outside of 
ERM-II, saying it was important for Latvia's Central Bank to 
have a voice within the European Central Bank system and to 
not be a second-tier country.  Rather, he pointed to the 
"positives" in Latvia's current situation, including the 
beneficial effects of wage decreases, which help Latvia's 
competitiveness, and the need for structural reform and 
consolidation, especially in the health sector.  He noted 
that Latvia has needed structural reforms for a while but 
that during the boom times, it was not politically feasible 
and instead the government and country went on a spending 
spree.  Now, while it is painful, he argued that reforms are 
more politically acceptable, and that people understand the 
need for IMF conditionality, as it is Latvia asking the IMF 
for assistance. 
 
¶3.    (U) Repse and Latvian Ambassador to the U.S. Andrejs 
Pildegovics also expressed their concern about proposed 
Senate legislation that designates Latvia as an offshore 
secrecy jurisdiction.  They provided a copy of their letter 
to Treasury Secretary Geithner on this issue and asked for 
State Department assistance as well.  They noted that in 
their talks with Treasury, they understood that the 
Administration may propose its own tax haven legislation that 
does not include a "list approach" to the issue. 
CLINTON