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Cablegate: Pm Accepts Fm's Resignation; Machinations Continue

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1. Summary: October 22 began what will be a busy week in Latvia's
ongoing political saga. Prime Minister Aigars Kalvitis revised his
earlier decision and accepted the resignation of Foreign Affairs
Minister Artis Pabriks, effective October 29. The opposition has
called a special session of parliament for October 23 for a
confidence vote in the government, which is expected to fail, but it
will be a barometer of the situation within the coalition. October
24 there will be the first vote on the 2008 budget, which is also in
effect a confidence vote in the government. That same day, the
anti-corruption agency is expected to announce fines against
political parties for violations of campaign financing laws in the
October 2006 elections. The PM's People's Party is expected to be
hit with a fine of up to one million dollars. That event will bring
into sharp relief the issue that started the current crisis; the
dismissal of anti-corruption chief Loskutovs. It remains unclear,
though, when parliament will take that up. Meanwhile, President
Zatlers continues his political consultations, but his desired way
forward remains unclear. End summary.

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2. The week began when Prime Minister Aigars Kalvitis reversed his
earlier decision and accepted the resignation of Foreign Affairs
Minister Artis Pabriks, effective October 29. Pabriks will return to
the parliament and says that he will remain in People's Party.
Effective October 29, Minister of Culture Helena Demakova will serve
as acting minister of foreign affairs until the Saeima approves a
new minister. MFA contacts tell us that how this will all play out
in practice remains very unclear.

3. While Pabriks will remain in People's party, he may take a more
independent approach in parliament. Sacked local government
minister Stokenbergs has said he will return to parliament and be an
independent. And coalition member Visvaldis Lacis has left his
party over his announcement last week that he was told three weeks
ago how to vote on the Loskutovs case. Lacis has previously voted
against the government on key issues, including the border treaty
with Russia, but it still matters that he is officially becoming

4. Recent developments have energized the opposition. All three
opposition parties in parliament signed a petition to convene an
extraordinary Saeima session to hold no-confidence vote on the
Kalvitis government. Despite signs of clashes within the ruling
coalition, it is not expected that vote will pass on October 23. It
will, however, provide a useful barometer of feelings within the
coalition; especially if not many coalition MP's speak in defense of
the government.

5. The government has moved up the first reading of the 2008 budget
to a special Saeima session on October 24. It is expected to pass,
as the PM had intensive discussions with coalition partners to
secure their support. He also has met with the unions and addressed
their concerns about what they viewed as too small increases in
wages for public sector employees. The PM claims that the money is
being found elsewhere in the budget and that he will be able to
preserve a surplus of one percent of GDP, which economic experts had
said was essential for Latvia's economic health.

6. Also on October 24, the KNAB is holding a press conference to
announce fines against political parties for illegal contributions
in the October 2006 parliamentary elections. It is widely believed
that Kalvitis' Peoples Party and coalition partner First Party will
be fined. The levy on People's Party is expected to be 500,000
Lats, or roughly one million dollars. Many speculate that the
action to suspend and dismiss Loskutovs was designed to pre-empt
these fines, but that does not appear to be the end result. One
opposition MP speculated to us today that the vote on Loskutovs in
parliament could come as early as this Thursday, but that strikes us
as unlikely. The government is not yet in a position to manage a
vote on Loskutovs' future, we believe.

6. President Zatlers remains active, but his views on the way ahead
are unclear. On October 19, after meeting with all parties
represented in parliament, the President seemed to say that he
opposed dismissing the Saeima, as proposed by opposition parties and
labor unions. In an October 21 press interview, the President
placed responsibility for resolving the current crisis with the
Saeima, specifically in its handling of the budget and Loskutovs.
If the Saeima "fails in its duty", the President warned that he was
willing to use any instruments provided him by the Constitution,
including the dismissal of the Saeima. (Note: Under the
constitution, this would require a referendum and, if it failed,
Zatlers would be removed from office. End note.)

7. Comment: The constantly changing statements and actions show that
there could be some unexpected moves from the government and the
President in the coming days, but we continue to believe that the
political leaders will attempt to stage manage the situation. On the
one hand, the government now has three vacant positions in the
cabinet and can count on at least two fewer votes in parliament and
likely three. On the other hand, it remains unclear how a new
coalition could be easily assembled. It is possible that the
government will operate in a continued limbo and seeming crisis
through December, as two coalition members have party congresses at

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the end of November that could be vital. In the meantime, Latvia's
attention will likely be focused heavily inward.


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