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Cablegate: Amendments to Latvia's State Budget

VZCZCXRO6319
RR RUEHAG RUEHAST RUEHDA RUEHDF RUEHFL RUEHIK RUEHKW RUEHLA RUEHLN
RUEHLZ RUEHPOD RUEHROV RUEHSR RUEHVK RUEHYG
DE RUEHRA #0440 2071455
ZNR UUUUU ZZH
R 251455Z JUL 08
FM AMEMBASSY RIGA
TO RUEHC/SECSTATE WASHDC 5112
INFO RUEATRS/DEPTTREAS WASHDC
RUCPDOC/DEPT OF COMMERCE WASHDC
RUEHZL/EUROPEAN POLITICAL COLLECTIVE

UNCLAS RIGA 000440

SIPDIS

E.O. 12958: N/A
TAGS: ECON EFIN ETRD PGOV LG
SUBJECT: AMENDMENTS TO LATVIA'S STATE BUDGET

Ref: Riga 405

1. On July 17, the Saeima (Parliament) passed amendments to the Law
on the State Budget. The amendments were introduced in response to
decreasing budget revenues (in June, budget expenditures exceeded
revenues by $238 million USD), and projections that a 1% of GDP
surplus is unlikely to be achieved by the end of the year as
planned. The amended budget sets a less ambitious surplus goal of
0.05% of GDP, which amounts to $18 million USD. Planned revenues
and expenditures were set at $11.680 billion USD and $11.698 billion
USD, respectively, and the total budget cut equals $522 million USD.
The reduction in spending was accomplished by taking unfilled
vacancies off the payroll budget, reducing non-essential government
purchases and, mostly, by removing funding for various projects,
particularly EU co-funded items, that will no longer be carried out
this year. As previously reported, Latvia also decided not to pusue
participation in the Strategic Airlift Consortium to save money
(reftel).

2. The budget changes have not produced much reaction from the
economic community. Peteris Strautins, the Chief Socioeconomic
Expert at Hansabanka, called the amendments a reasonable compromise,
given the dichotomy between the government's earlier,
widely-announced commitment to a surplus budget and the necessity to
stimulate the sluggish economy. Strautins doubts the budget will
actually result in a surplus by the end of the year due to the
rapidly falling economic growth, which would likely dissapoint the
major credit rating agencies who have strongly advocated a surplus
budget to combat inflationary pressures.

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