IN REVIEW September 13 – 20, 2011 Issue 37

CONTENTS

Government Harmony Center Wins Snap Elections in Latvia 63 MPs from Dissolved Latvian Parliament have been Re-elected Expects ZRP to Pick Third Partner in Would-Be Ruling Coalition in Latvia Harmony Center Leader: Latvia Should Hold Referendum on Euro Adoption Harmony Center, Zatlers , Unity Share Many Similar Views Timeline of the Latvian Government’s Decisions in Relation to airBaltic Baltijas Aviācijas Sistēmas Asked to Immediately Meet the Government’s Conditions

Economics Outcome of Latvian Elections May have Positive effect on Financial Market Latvian Government to Sign Protocol of Intent with IBM Purchases of Capital Goods Continue to Account for the Current Account Deficit Latvian Foreign Tourism Shows its Best Result Yet in 2011

Foreign Affairs Kristovskis to Take Part in 66th Session of UN General Assembly in New York EU Multi-Annual Budget - Negotiations between PMs of Finland and Latvia PM Calls on Poland to Defend Latvia’s Interests of Latvia During EU Presidency Foreign Minister Kristovskis Expresses Support to Georgia Latvia and Kazakhstan Sign Intergovernmental Agreement Latvia to Join Open Government Partnership Initiative Latvian President, NATO Secretary General Agree on Main Issues on NATO Agenda EU’s Multiannual Financial Framework – Latvia’s Top Priority during Polish Presidency Kristovskis Defends Latvia’s Interests Regarding EU Budget in Brussels

Society 14,085 Voters Abroad Took Part in Early Elections of the 11th

Articles of Interest Bloomberg News: “Latvian Parties Agree on Budget, Euro as Coalition Talks Begin” The Economist: “Snap Election Falls Flat” New York Times: “Gains of Pro-Russian Party in Latvia Show Worries on Economy and Graft” Latvians Online: “Election Turnout Abroad Best Since 1993; London Again Sees Most Voters” Associated Press: “Pro-Russia Party Wins Snap Latvian Election” BBC: “Pro-Russia Party Wins Most Votes in Latvia Election”

Government Harmony Center Wins Snap Elections in Latvia On September 20, the Latvian Central Election Commission (CVK) produced preliminary results of the September 17 snap elections with votes counted from all polling stations. Those results show convincing victory of the leftist pro-Russia Harmony Center with 28.36 percent of votes, the Baltic News Service reported. According to the Rīga-based newswire, with votes from all 1,027 polling stations counted, the Harmony Center has received 259,930 votes or 28.36 percent; the newly-founded centrist Zatlers Reform Party (ZRP), 190,853 votes or 20.82 percent; the center-right Unity bloc, 172,567 votes 1

or 18.83 percent; the nationalist conservative National Alliance, 127,208 votes or 13.88 percent; and the center-right the Greens and Farmers Union (ZZS), 111,955 votes or 12.22 percent. According to BNS, no other parties have been able to rise above the statutory 5-percent threshold in the elections in Latvia. In the Rīga electoral district, which, in addition to the polling stations in the Latvian capital, includes also all polling stations organized abroad, the Harmony Center received 41.45 percent of votes, BNS reported. BNS also reported that information from all 235 polling stations organized in Rīga and abroad shows that the Harmony Center received 118,079 votes or 41.54 percent of all votes cast in the Rīga electoral district. The Unity was in second place in the Rīga electoral district, with 17.41 percent or 49,479 votes, and the ZRP was in the third place, with 15.12 percent or 42,977 votes. The National Alliance received 13.4 percent or 38,086 votes, and the ZZS received 5.99 percent or 17,028 votes, BNS reported. According to the BNS newswire, Harmony Center scored a convincing victory in two of the five electoral districts – the Rīga district and the Latgale district in eastern Latvia; but the ZRP received the largest number of votes in the three remaining electoral districts – Zemgale in southern Latvia, Vidzeme in north-eastern part of the country, and Kurzeme in the west. BNS also reported that the CVK said earlier that the Harmony Center had won 32 seats in the 100-member Latvian parliament, the ZRP will have 22 seats, the Unity 20 seats, the National Alliance 14 seats, and the ZZS 13 seats.

63 MPs from Dissolved Latvian Parliament have been Re-elected As many as 63 lawmakers of the dissolved 100-seated Latvian parliament have been re-elected, according to estimations by the Baltic News Service based on the preliminary list of lawmakers elected to the parliament published by the Central Elections Commission (CVK) after the snap parliament elections on Saturday, September 17. According to the Rīga-based newswire, the majority of changes have been brought to the parliament by the newly-founded Zatlers Reform Party (ZRP). There are only two lawmakers among the 22 MPs from ZRP who have experience in the parliament – Klāvs Olšteins, who had been elected from the Unity bloc earlier, and Romualds Ražuks, who worked in the parliament several years ago. BNS also reported that the faction of the leftist pro-Russian Harmony Center – the winner of the elections, who will have 31 seats at the parliament – have seven new lawmakers, including three women. There are two new lawmakers among the 20 mandates for the Unity bloc, BNS reported, while the National Alliance will have eight new lawmakers who have not worked in the previous parliament among the 14 lawmakers elected to this parliament. Meanwhile, according to BNS, the Greens and Farmers Union (ZZS) faction will not have any new lawmakers, as voters have shown support to the 13 party members who already worked in the previous parliament. According to BNS, it is not excluded that the number of new lawmakers will grow after some of the current lawmakers are named for the government. BNS reported that the CVK will release official results of the September 17 snap elections no later than in three weeks.

Unity Expects ZRP to Pick Third Partner in Would-Be Ruling Coalition in Latvia The center-right Unity bloc expects the newly-founded centrist Zatlers Reform Party (ZRP) to name the third partner in the would-be ruling coalition to be formed in Latvia after the September 17 snap elections, Solvita Āboltiņa, one of Unity‟s leaders, told the press after the meeting of the bloc‟s board on September 19, the Baltic News Service reported. 2

According to the Rīga-based newswire, when asked how long it would take to form the new ruling coalition, Āboltiņa said only that the Unity believed that the should be formed within a month, which is also the statutory deadline for formation of the new government. “We hope to make some progress tomorrow. At present it is very important to understand what is the ZRP idea of the ruling coalition,” the Unity representative was quoted as saying, pointing out that the ZRP had received the second largest number of votes in the snap elections. At the same time, according to BNS, Unity believes that it has the best candidate prime minister – Latvia‟s current Prime Minister Valdis Dombrovskis. “We have the best candidate prime minister but no offices and spheres of responsibility have been discussed in the talks so far, we have only discussed programmatic objectives,” Āboltiņa was quoted as saying. An inquiry about the possibility of the Unity being left out of the would-be ruling coalition only made the bloc‟s leaders smile, BNS reported. “No, the most realistic ruling coalition would be tripartite –Unity, ZRP, and then there is the question about the third partner in the coalition,” Dombrovskis was quoted as saying. According to BNS, the Unity board was on Monday informed about the results of the talks about formation of the new ruling coalition held so far and gave the party leaders a mandate to continue the talks. “We are still open to [cooperation with], first of all, ZRP, then the National Alliance and the Harmony Center, and the board‟s mandate was to proceed along those lines,” Āboltiņa said. BNS also reported that on Tuesday morning, September 20, Unity had a meeting with the ZRP representatives and will also arrange for the second round in the talks with the Harmony Center and the National Alliance. “We are pleased with the triumph of the rule-of-law. The first round of the talks did not reveal any dramatic differences,” Āboltiņa told BNS, describing the talks already held with the parties elected to the new Latvian parliament.

Harmony Center Leader: Latvia Should Hold Referendum on Euro Adoption Latvia should hold a referendum on the euro adoption, said Nils Ušakovs, the Rīga City Mayor and the leader of the leftist pro-Russia Harmony Center, who won the snap parliament elections on Saturday, in an interview with Latvian daily Diena on September 19, the Baltic News Service reported. The euro adoption in Latvia, in his words, depends on stability of the . “There are many factors that we may not influence -- stability of the eurozone and the future. We should meet all possible criteria to be able to discuss already in 2013 whether a referendum on the euro adoption in necessary,” Ušakovs was quoted as saying. He believes that it would be right to allow people to voice their opinions about support to the adoption of the euro. “It is related with the state symbol, with a very serious step in the development of the country. It is not about how we will fight inflation or form the government budget. The question about replacing the lat with the euro is very important and a referendum would be the right format to decide on it. Besides, the UK, Sweden, Denmark, the Czech Republic have already said „no‟ to the euro,” said Ušakovs. One of the party‟s leaders, Andrejs Klementjevs, in an interview with Latvian daily Diena on Monday, said that Harmony Center will not insist on its positions and ministries during coalition talks if other partners will have better candidates, the Baltic News Service reported. “It would not be correct to come to talks with our own Cabinet,” Klementjevs was quoted as saying. “We will propose that each partner comes up with one candidate, and then we will see

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who could better represent the sector. If we see that the candidate of a partner is better than ours, we are ready to concede. If ours is better, we will demand the respect,” he said. Speaking about the prime minister's position, Klementjevs so far does not accept a non-partisan candidate, but “we are ready to discuss any variant, if it is convincingly better than ours.” Klementjevs said that the Harmony Center will do everything to get into the government, but it is not ready to give up its principles. “We are a left-wing social democratic party. We do not wish to be in the opposition and only criticize. We want a wide coalition with two thirds at the parliament,” he said. Implementation of the social democratic principles will be reflected in protecting the social budget. “The social budget may not be cut, we may not solve our problems on its account,” he said. According to BNS, when asked about the budget consolidation proposals of the Harmony Center, Klementjevs did not give an answer. Instead he said that “next year's budget consolidation will be on the shoulders of Prime Minister Valdis Dombrovskis.” “It is logical. The new Cabinet of Ministers cannot prepare the budget so that it can be adopted in December. The budget is the work of the current parliament and government,” said the politician.

Harmony Center, Zatlers Reform Party, Unity Share Many Similar Views Latvia‟s left-wing pro-Russia Harmony Center and the center-right Zatlers Reform Party (ZRP) share similar views on many issues concerning political reforms and the rule of law, but their positions differ on economic issues, including pensions, reported the Baltic News Service. Harmony Center leader Nils Ušakovs and ZRP chairman Valdis Zatlers told this to the Rīga- based newswire after the two parties held talks on September 19 on Latvia‟s new government coalition. According to BNS, the two parties also have differing opinions about some tax issues and history, but these divisions have not prevented them from finding “several points of congruence,” Zatlers was quoted as saying. He indicated that the approach to issues discussed at the talks had been very pragmatic. Ušakovs told BNS that both parties would still have to discuss a number of issues, including the possibility of lowering some taxes and the time when indexation of pensions could resume. He added that the possible distribution of ministerial portfolios or potential reduction of the number of ministries was not discussed at this round of talks, BNS reported. According to BNS, when asked how much closer the Harmony Center was to joining the ruling coalition, Zatlers pointed out that it had been the first meeting during which the parties had been looking for the aspects on which they had similar opinions. “This is the best time for identifying and harmonizing the opinions of the parties and for building a stable coalition not torn by internal differences,” the ZRP leader was quoted as saying, adding that the potential coalition partners should be able to agree on the objectives to be accomplished during the next three years. Harmony Center will make all possible efforts for Latvia to have a stable ruling coalition capable of taking actions after the snap elections, Ušakovs told BNS, adding that the coalition would be more stable and efficient, if it included the Harmony Center representatives. According to BNS, when asked why the Harmony Center as the winner of the snap elections had not assumed the key role in formation of the new government, Ušakovs replied that talks were under way between the parties elected to the new parliament. When the outline of the would-be ruling coalition becomes clear, the Harmony Center will be ready to delegate its candidate prime minister.

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“The ruling coalition should be able to work till the end of the new parliament‟s term and to carry out the reforms necessary to stabilize the national economy and recover from the economic crisis,” the Harmony Center leader was quoted as saying. Just like coalition talks between the leftist pro-Russia Harmony center and the centrist Zatlers Reform Party (ZRP), the Harmony Center's talks with the center-right Unity also resulted in finding common ground for cooperation, BNS reported. According to BNS, after talks on September 19, representatives of the Harmony Center and Unity announced that the two parties share a common vision on several issues concerning the economy and the rule of law, as well as the fundamental national policy issues. Latvian Prime Minister Valdis Dombrovskis of Unity and Nils Ušakovs, the Harmony Center's candidate for prime minister, told this to BNS after the talks. BNS also reported that the two parties hold differing opinions about the most appropriate year for raising pensions. Unity believes pensions should be raised in 2012, while the Harmony Center believes it could be done already next year. Dombrovskis told BNS that Unity is set to hold talks with all political parties elected to parliament. The criteria on which the Unity will base its choice of coalition partners will become clear after the next round of talks, the Prime Minister said.

Timeline of the Latvian Government’s Decisions in Relation to airBaltic In view of concerns over the struggling financial situation of the national airline Air Baltic Corporation (airBaltic), the Latvian government has systematically taken steps in an attempt to obtain a complete and comprehensive view of the actual situation at the airline. These measures are necessary in order for the state to be able to act as a prudent shareholder and correspondingly adopt an objective and thoroughly deliberated decision, instead of acting on the basis of the views presented by airBaltic and the largest minority shareholder, Baltijas Aviācijas sistēmas (BAS), without having the opportunity – contrary to the opportunity currently possessed by airBaltic and BAS – to objectively verify the accurateness and completeness of such information. 1) The delivery of the audited airBaltic report for the year 2010. This would provide an objective view about the financial situation at the company, including an expert assessment of alleged huge unreported liabilities of the company which could substantially affect the financial situation of airBaltic. In addition, the requirement is to deliver an audited report of airBaltic for the first quarter of 2011. 2) Election of the Supervisory Council in order to supervise the Management Board and provide an opinion – pursuant to the law – on the board‟s proposal for increase of share capital. 3) Amendments to the Shareholders‟ Cooperation Agreement and the charter of the company which would increase for the state`s control over the company in accordance with the general provisions of the law. 4) Annulment of the agreement concluded between airBaltic and Transatlantic Holdings Company S.A on September 1, 2011, purporting to dispose and transfer shares that, considering the Shareholders‟ Meeting Resolutions and provisions of law, are to be regarded as canceled and non-existing. The objective of these conditions imposed by the government is to regain the actual control over airBaltic and accordingly be able to track the flow of the invested government funds. Particularly, the government has repeatedly requested airBaltic and BAS to fulfill the requirements required by the law, which are crucial for the adoption of the final decision. Link to full timeline: http://www.mk.gov.lv/en/aktuali/zinas/2011/09/160911-01/.

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Baltijas Aviācijas Sistēmas Asked to Immediately Meet the Government’s Conditions On Tuesday, September 13, the Cabinet of Ministers heard the report by the Ministry of Transport and the financial consultant Prudentia on the progress made in negotiations with the private shareholder of airBaltic, Baltijas Aviācijas sistēmas (BAS), since the government sitting of September 6 as well as on the whole situation at airBaltic. At the press conference after the government sitting, Prime Minister Valdis Dombrovskis informed that the government is keen to engage in stabilization of the financial situation of airBaltic and preservation of the national air operator, which creates substantial advantages for Latvia in the area of logistics and tourist attraction and is a significant employer. The Head of the Government stressed that: “Taking into account the developments in the situation regarding airBaltic, the government also considers other forms of public participation, because it is important to maintain Latvia‟s position in the aviation sector and further develop the Rīga Airport as a regional air traffic centre. Therefore the Ministry of Transport and consultant were given a task to work on scenarios for the government‟s participation and solutions to other issues by September 20 and to submit them to the government for consideration.” Dombrovskis noted that the government funding is allocated by carefully assessing the most advantageous solutions for the state and making sure about the financial profitability and validity of investments. Minister for Transport Uldis Augulis informed the media about the accomplishments made since the government sitting of September 6 and acknowledged that the consultant has not achieved a substantial progress in negotiations with the BAS on the solutions regarding airBaltic. The governments calls on the BAS to immediately fulfill the conditions imposed by the government, to refrain from linking the financial situation of airBaltic with the pre-election campaign, as well as to responsibly ensure future stability of the company, including, uninterruptedness of flights. As previously reported, on August 23, the government made a conceptual decision to participate in the stabilization of the financial situation of airBaltic by imposing a set of conditions. The financial consultant Prudentia was given a task to agree with the BAS on changing the management of airBaltic, on the amendments to the company statutes, as well as on changes to the shareholders‟ agreement, ensuring that the shareholders‟ relations shall be regulated by the provisions of the Commercial Law as well as on the preservation of Rīga Airport as a base airport of airBaltic. If these conditions were met, the government expressed its readiness to consider the following scenarios – to take over the BAS owned shares of airBaltic or together with the private shareholder to proportionally increase the fixed capital of the air operator. The state of Latvia as a majority shareholder owns 52.6% shares of the air operator airBaltic while the private shareholder Baltijas Aviācijas sistēmas owns 47.2%. The has attracted the financial consultant Prudentia to assess the financial situation of airBaltic and to decide on future activities of the air operator. Audio file of the press conference: http://t.co/uZoN3YK

Economics Outcome of Latvian Elections May have Positive effect on Financial Market The outcome of Latvia‟s early general elections have not left any significant impact on the financial market, but further developments might even have positive effects, because none of the possible coalition partners has raised objections to the privatization of state-owned companies and their listing on stock exchange, said number of securities experts told the Baltic News Service. “I think that the result of the elections is beneficial to financial markets. We will be watching further developments and the creation of the coalition. If it is made by the [center-right] Unity, 6

the Zatlers Reform Party (ZRP) and the [nationalist conservative] National Alliance, it is good that these political parties do not rule out the privatization of those state-owned companies that would be better off at the hands of private owners,” Maris Rambaks, head of Brokerage Latvia at LHV, told BNS. According to the newswire, the expert also pointed out that Latvia‟s outgoing parliament was much more influenced by the so-called oligarchs‟ parties that could block many decisions for personal interests. “If the coalition is set up by the three right-wing parties -- Unity, ZRP, and the National Alliance -- the only question is, who will be the senior partner in this coalition. If it is ZRP, which can start carrying out the reforms it has announced, it is necessary to bear in mind that any change of direction affects investors. Investors favor the situation where there are concrete plans and goals that are attained. The more stable the government's social and economic policy, the happier the investors,” Andrejs Martinovs, a board member of Finasta Asset Management, told BNS. Martinovs also noted to BNS that none of the likely coalition partners had spoken against privatization in the run-up to the elections. “Assuming that these gentlemen are thinking about national interests and Latvia, selling off [state-owned] companies and listing their shares would be a good impulse for the development of the Latvian securities market. A well-developed securities market, in turn, only fosters economic growth. In the long-term perspective, developing the securities market would be even more important than patching the budget deficit,” he was quoted as saying. According to BNS, the surveyed experts also pointed out that the elections in Latvia cannot leave any particular impact on selling Latvian government bonds on international markets. “Already the referendum on the dissolution of parliament showed that these decisions have no major influence. The focus of international markets in on countries like Greece, whereas Latvia is just a trifle nobody worries about against this overall backdrop,” said Rambaks. BNS also reported that Martinovs said the financial markets could only be affected if the forming of Latvia's new coalition drags on and uncertainties appear. This might affect both the price of Latvian bonds and the issue of new bonds.

Latvian Government to Sign Protocol of Intent with IBM On Monday, September 12, a meeting of the representatives of IBM and the Latvian side was held in the Cabinet of Ministers with a view to discuss the cooperation in the area of research. As the result of the meeting, the sides agreed to sign the Protocol of Intent in order to start joint work on the development of a research center in Latvia. Prime Minister Valdis Dombrovskis stressed that this is an important initiative that will allow for development of international competitiveness of Latvia‟s scientific research. “Already in the coming weeks we plan to agree on a concrete model for cooperation with IBM and sign the Protocol of Intent between IBM and the government of Latvia. Continuing active work, the research centre could start operating already in the middle of next year. Nanotechnologies, renewable energy as well as researches related with the area of health and medicine are currently defined as possible research areas. The Ministry of Education and Science, the Ministry of Economics, the Science Council, universities, and scientific research centers will participate in the cooperation project,” said Dombrovskis. The head of IBM Latvia, Uģis Eriņš, expressed his gratification for the government‟s interest in the cooperation project, which will definitely significantly contribute to the development of the area of research and innovations in Latvia: “The cooperation with IBM will allow the Latvian scientists commercialize the results of their research, gain access to the most up-to-date technologies, increase competitiveness and the national economy will benefit on the whole, gaining commercial advantage from intellectual property,” said Eriņš.

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The rector of the University of Latvia, Mārcis Auziņš, acknowledged that: “Within the framework of cooperation with IBM, the priority research areas will be identified where the universities should work to attract the leading industry players and ensure the commercialization of researches.” In July 2010, during the working visit to the United States, Dombrovskis and representatives of several IT companies of Latvia met the leading employees of IBM who are responsible for research with a view to discuss the opportunities for development of closer mutual cooperation. The emphasized that the companies of the IT sector in Latvia can offer not only attractive tax system, well-developed IT infrastructure, experienced and talented professionals, but can also successfully solve the tasks and problems of the leading world companies. Today‟s meeting is a continuation of negotiations on mutual cooperation between IBM, Latvian companies and institutions which was started in July, during the Prime Minister‟s working visit to the US. The first meeting with the representatives of IBM was held on August 8 in Rīga and the agreement was reached to draft proposals together with the Investment and Development Agency of Latvia and the universities for a cooperation model with IBM to develop the research centre in Latvia. About IBM: Since 1993, the IBM Corporation has been a leading company according to the number of registered patents having registered more than 40,000 patents around the world. This year the IBM Corporation became the first company in the world which has managed to obtain five thousand patents during one year. Since 1996, the IBM has been investing approximately USD 5 billion a year in the area of research, development and engineering. University of Latvia Rector Mārcis Auziņš, Freelance Advisor to the Prime Minister Ivars Lācis, and representatives of the Ministry of Education and Science and the Ministry of Economics represented the Latvian side at the meeting. Photo of the meeting: http://www.flickr.com/photos/valstskanceleja/sets/72157627651883698/

Purchases of Capital Goods Continue to Account for the Current Account Deficit In July 2011, the Latvian balance-of-payments current account deficit increased to160 million lats (EUR 227.66 million) and the increase was primarily accounted for by the substantial purchases of capital goods made by several enterprises, reported economist Daina Paula. Writing for the website Macroeconomics.lv, Paula noted that the goods foreign trade negative balance according to the balance-of-payments methodology rose to 195.6 million lats (EUR 278.31 million). “To a great extent, it was reflected already in the external trade statistics published by the Central Statistical Bureau (because of the rise in the imports of mechanisms and mechanical devices), but, according to the balance-of-payments methodology, the total goods trade deficit was increased also by purchases of other capital goods,” she wrote. “The drop in the positive balance in services external trade to 55.7 million lats (EUR 79.25 million) was determined by a small reduction in services exports in many groups of services.” According to Paula, the negative balance in the income account (26.1 million lats, or EUR 37.12 million) resulted equally from the profits made by foreign direct investor enterprises and the dividends they paid out. Paula concluded: “The June and July balance-of-payments data are evidence that certain large transactions in Latvia can have a substantial impact on the macroeconomic indicators (relative to the size of the economy). The development trends of the global economy also have a significant effect on a small, open economy, and at the moment they do not point to Latvian export growth in the next few months. That is yet another indication of how important it is to develop and maintain comprehensible and stable economic policies, so that the local entrepreneurs would not

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lose their incentive and it would be possible to attract foreign investment for long-term goals in the development of production and export.” Link to full text: http://www.macroeconomics.lv/purchases-capital-goods-continue-account- current-account-deficit.

Latvian Foreign Tourism Shows its Best Result Yet in 2011 This year, the Latvian foreign tourism industry has shown its best results yet, Armands Slokenbergs, director of the National Agency for Tourism Development (TAVA), said at a news conference on Monday, September 19, the Baltic News Service reported. According to the Rīga-based newswire, the head of the government agency pointed out that the number of foreign tourists in Latvia rose by 31 percent year-on-year in the first half of 2011, while the number of foreign tourists staying overnight at Latvian hotels or guest houses topped the best result of the last decade, achieved in the first half of 2008, by 12 percent. “This year has been very successful in terms of the number of foreign tourists, and in such circumstances it is always important to sell the product to other countries,” Slokenbergs was quoted as saying. He informed that the second tourism seminar Baltic Connecting is due to take place in Rīga from September 25-29, which might help raise the profile of Latvian and Baltic tourist destinations among foreign tourism professionals. Kitija Gitendorfa, president of the Latvian Association of Tourism Agents (ALTA), added that Baltic Connection is one of the most important tourism industry events in the Baltics. “We have learned from our mistakes, analyzed the previous event and seriously worked on details to present Latvia at its best to the representatives of foreign countries. Latvia‟s position will be reinforced with this event, and we will show that Latvia is a very stable tourist destination in the Baltic context,” Gitendorfa was quoted as saying. The Baltic Connecting seminar is expected to gather tourism professionals from European and Asian states that want to improve their business and expand in the Baltic market. The objective of the seminar is to provide the tourism professionals an opportunity to share information, ideas and contacts. TAVA is organizing the event in association with airBaltic, Enterprise Estonia (Estonian Tourist Board), and Lithuanian State Department of Tourism.

Foreign Affairs Kristovskis to Take Part in 66th Session of UN General Assembly in New York Latvian Foreign Minister Ģirts Valdis Kristovskis will take part in the 66th Session of UN General Assembly in New York, scheduled from September 19 to September 25. The General Assembly session will be launched with a general debate involving heads of state and government, and foreign ministers. During the visit, the Foreign Minister will participate in the UN Symposium on Counter Terrorism, where he is to deliver an address. Beside participating in various UN events, Minister Kristovskis is to hold a number of bilateral meetings with foreign ministers of Jordan, Pakistan, Indonesia, Israel, Mexico, Bosnia and Herzegovina, Bulgaria, and Singapore. The minister will also take part in the meetings of the European Union foreign ministers with foreign ministers of the United States and Russian Federation. Besides, as part of the UN General Assembly, the US State Secretary Hillary Clinton will host a dinner for transatlantic partners. Together with the , the Foreign Minister will also meet the US Jewish organizations and the representatives of the Latvian community.

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EU Multi-Annual Budget - Negotiations between PMs of Finland and Latvia On Friday, September 16, Prime Minister Valdis Dombrovskis hosted the Prime Minister of Finland Jyrki Katainen, who arrived for his first visit to Latvia since assuming the post of the Head of Government. Katainen attended the annual Rīga Conference and together with the Head of the Government of Latvia delivered a lecture in the Rīga Technical University on the Finland‟s experience in the area of innovations and education reform. The Heads of Government of Latvia and Finland exchanged opinions on the situation in the eurozone and future outlooks, as well as on next European Union‟s multi-annual budget perspective for 2014-2020. Dombrovskis particularly stressed that Latvia does not support the proposal of the to limit funding for the Cohesion Policy to 2.5% of GDP. “Such an approach of setting linear ceiling contradicts the regional development objectives. Latvia‟s priority is to achieve sufficiently large funding,” said Dombrovskis. The Head of Government of Latvia also drew attention to Latvia‟s position regarding the Common Agricultural Policy (CAP) where it is necessary to achieve fair and equal conditions of competition for the Latvian farmers in the common European market. “The payments for the Latvian framers should be in the amount of at least 200 euros per hectare,” said Dombrovskis. Katainen expressed his position that the support to farmers in the European Union is one of the priorities of cooperation between Latvia and Finland. Dombrovskis informed about current developments in the area of energy in the Baltic countries, providing the reasons why the establishment of a regional gas terminal is the best solution how to improve energy supply in the Baltic countries and that Latvia is a better place for terminal development. Prime Minister of Finland Katainen mentioned the EU Sulphur Directive, which is currently under development and provides for gradual reduction of sulphur content, as an important issue of cooperation. Katainen expressed the view that this is a positive initiative, however, it may increase transport costs in the Baltic countries an there is a need to assess its impact at the time of economic difficulties. Katainen appreciated the accomplishments of the Latvian society and the government during the last two years and expressed the position that Latvia has chosen the most proper way to overcome the financial and economic difficulties. The Heads of Government of Latvia and Finland discussed the cooperation between entrepreneurs of Latvia and Finland. Katainen emphasized that currently 300 Finnish companies are operating in Latvia which confirms the importance of the Latvian market and close economic ties of the two countries. In the public lecture Knowledge and Talents – the Finland‟s Experience and Latvia‟s Opportunities that was held before the meeting, Dombrovskis and Katainen compared the Finland‟s and Latvia‟s experience of overcoming the economic crises. Both Prime Ministers agreed that the national development is based on an educated society and innovations which are focused on long-term development. “The Finnish education system is one of the best in the world, because the development of education and innovations has been its priority for many years,” said Prime Minister Katainen. He emphasized that, to a great extent, investment in education, research and innovations caused economic recovery of Finland after the crisis in 2008 when the country‟s GDP had fallen to 8%. “There is a challenge in structural changes which come along with crisis; however, it is relatively easy for small countries like Finland and Latvia to adapt to changes,” said the Prime Minister of Finland. He stressed that at the time of changes it is particularly important to seek new opportunities for cooperation, incl., between government institutions and entrepreneurs to take steps towards dynamic development of innovations and research and, thus, towards economic recovery. 10

Today, the Prime Minister of Latvia participates in the Rīga Conference and together with the Prime Ministers of Lithuania, Estonia, Finland, and Poland will discuss the economic growth at the time of overcoming the economic crisis as well as security in the European Union and NATO space. Economic cooperation between Latvia and Finland By the end of 2010, Finland was Latvia‟s 9th largest export and 6th largest import partner. Latvia‟s main export goods to Finland are timber and timber products while the main imports from Finland are mineral products, cars, mechanisms and electronic devices. In the field of service export, at the end of last year Finland was 9th largest service export and 8th largest service import partner. In 2010, Latvia‟s services for foreign trade with Finland were mainly shipment and tourism. According to the statistics of the Bank of Latvia, Finland‟s accumulated direct investments by the end of the first half of 2011 amounted to LVL 266.4 million. By the end of 2010, investments were mostly accumulated with real estate operations, in manufacturing industry and commerce. Latvia‟s accumulated direct investments in Finland by the end of the first half of 2011 amounted to LVL 3.8 million (EUR 5.4 million). By investments in fixed capital of companies registered in Latvia Finland ranks 11th with total investments of LVL 153 million. According to the data by Lursoft, 357 companies are operating with funding of Finland. Finland‟s largest investors are YIT Construction Ltd. with investments in company YIT Celtniecība Ltd and Olvi Ovi with investments in JSC Cēsu alus. Photo of the meeting: http://www.flickr.com/photos/valstskanceleja/sets/72157627558012887/ Audio file of the press conference of the Heads of Government of Latvia and Finland: http://filesocial.com/cd0kxgj Link to full text: http://www.mk.gov.lv/en/aktuali/zinas/2011/09/170911-01/.

PM Calls on Poland to Defend Latvia’s Interests of Latvia During EU Presidency On Friday, September 16, Prime Minister Valdis Dombrovskis held a meeting with Prime Minister of Poland Donald Tusk, who has arrived to Latvia to participate in the Rīga Conference. During the meeting, both sides expressed satisfaction with good bilateral relations within the framework of which also more rapid extension of economic contacts between the two countries could be observed during the last year. The Prime Minister of Latvia called on Tusk to defend Latvia‟s interests regarding planning of the EU‟s next financial perspective in the area of cohesion during the Poland‟s presidency and in developing a fairer common agricultural policy. The Prime Minister of Latvia said that Latvia pays special attention to two key priorities in negotiations on the EU‟s multi-annual budget for 2014-2020: the provision of sufficiently large cohesion funding, and equal conditions of competition for Latvian farmers in the European common market. During the conversation, Dombrovskis expressed regret for the European Commission‟s return to the idea proposed in the previous financial perspective – to set equal ceiling for funding that the Member States may receive from the EU funds, furthermore reduced funding - 2.5% of GDP. By implementing such an approach, the European regions with lower income would have access to less funding than richer regions. However, in order Latvia could sooner reach the average level of development of the EU and create favorable conditions for more rapid growth of the Latvian economy, it is necessary to ensure that the cohesion funding is not reduced- currently it is 3.7% of GDP. The European Commission came up with its proposals for the EU‟s multi-annual budget on June 29, 2011. The first discussions among the Member States of the European Union on the budget proposal were held at the end of July this year and provided an opportunity to exchange initial positions. 11

Evaluation of the EC proposals will continue till the end of the year. Negotiations will continue during the whole year 2012 but it is planned that the final agreement between the and the Member States on the actual budget framework will be reached at the end of 2012 or at the beginning of 2013. During the meeting, Dombrovskis informed about current developments in the area of energy in the Baltic countries, providing the reasons why the establishment of a regional gas terminal is the best solution to improve energy supply in the Baltic countries and that Latvia is a better place for terminal development. At the conclusion of the meeting, the Prime Minister of Latvia presented the most voluminous scientifically elaborated Latvian-Polish Dictionary to Prime Minister Tusk. The dictionary was developed by the team of authors under the guidance of Alberts Sarkanis, former Ambassador of Latvia to Poland. Economic cooperation between Latvia and Poland In the first half of 2011, Poland was Latvia‟s 6th largest export and 4th largest import partner right after Lithuania, Germany and Russia. The main export goods from Latvia to Poland are metals, metal products and mineral products while the main imports from Poland are cars, devices, chemical products and food products. In the field of Latvia‟s service export, which mainly consists of shipments, tourism and other economic operations, in 2010 Poland was Latvia‟s 18th largest service export and 11th largest service import partner. According to the statistics of the Bank of Latvia, Poland‟s accumulated direct investments in Latvia by the end of the first half of 2011 amounted to LVL 4.5 million and ranked Poland 38th in the list of foreign investors. By the end of the first half of 2011, investments were accumulated in wholesale and retailing, in manufacturing industry and operations with real estate. Latvia‟s accumulated capital investments in Poland at the end of the first half of 2011 were LVL 22.3 million or 97% invested in trade, financial intermediation and manufacturing industry. By investments in fixed capital of companies registered in Latvia Poland ranks 48th with total investments of LVL 2.2 million and 163 operating companies. The Largest Poland‟s investors are Pricewaterhouse Coopers Sp.z.o.o. with investments in company Pricewaterhouse Coopers Ltd. and Balex Metal Sp.z.o.o. (Balex Metal Ltd). Photo of the meeting (here). Link to full text: http://www.mk.gov.lv/en/aktuali/zinas/2011/09/190911-02/.

Minister Kristovskis Expresses Support to Georgia On September 16, Foreign Minister Ģirts Valdis Kristovskis met Georgian Foreign Minister Grigol Vashadze, who was one of the speakers at the Rīga Conference on September 16-17. Minister Kristovskis expressed gratification with reforms that Georgia has carried out and lauded Georgia‟s contribution to the ISAF mission in Afghanistan, as well as voiced clear support to Georgia‟s aspirations of rapprochement with Euro-Atlantic structures. Both ministers reviewed the current matters of Latvian-Georgian bilateral relations and those in international politics. The Foreign Minister of Georgia reiterated his willingness to launch negotiations on a deep and comprehensive free trade agreement with the EU and to finalize the talks on the Association Agreement, as well as actively working towards the visa regime liberalization with the EU. Ministers Kristovskis and Vashadze discussed the Eastern Partnership Initiative and the upcoming Eastern Partnership Summit in Warsaw on September 30, during which ambitious goals for further co-operation need to be set. Minister Kristovskis emphasized Latvia‟s consistent support to sovereignty and territorial integrity of Georgia.

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Latvia and Kazakhstan Sign Intergovernmental Agreement On September 16, the Latvian Foreign Ministry‟s Secretary of State, Andris Teikmanis, met with the Secretary of State of the Foreign Ministry of Kazakhstan, Rapil Zhoshybaev. During the conversation the parties discussed Latvian-Kazakh political and economic co- operation as well as current international issues, including the situation in Afghanistan and the Central Asian . Teikmanis emphasized that Kazakhstan is a significant and promising cooperation partner for Latvia in the Central Asian region. As part of the meeting, two intergovernmental agreements were signed, thus expanding the legal framework between the two countries: the Agreement of the Government of the Republic of Latvia and the Government of the Republic of Kazakhstan on Visa Waiver for Holders of Diplomatic Passports, signed by Foreign Ministry Secretary of State Andris Teikmanis; the Agreement of the Government of the Republic of Latvia and the Government of the Republic of Kazakhstan on Readmission of Persons; and the Protocol on the Implementation of the Agreement of the Government of the Republic of Latvia and the Government of the Republic of Kazakhstan on Readmission of Persons, signed by the Secretary of State of the Ministry of the Interior, Ilze Pētersone-Godmane. It must be noted that the economic cooperation between Latvia and Kazakhstan is undergoing a positive development, particularly in trade, transport, transit, and logistics. The Latvian-Kazakh trade turnover increased both in 2010 against 2009 (by 30.8%), and during the first half of 2011 (by 19.4% against the same period last year). Latvia‟s export to Kazakhstan has increased by 11.5 million USD or 90% over the first half of 2011. All the most significant sectors have registered export growth. In the nearest future, the Intergovernmental Commission will convene for its regular meeting on economic, scientific, and cultural matters. Notably, the members of the Kazakh Foreign Ministry delegation are to speak at the session devoted to Central Asia and Afghanistan at the Rīga Conference on September 17.

Latvia to Join Open Government Partnership Initiative On September 13, the Cabinet of Ministers approved Latvia‟s involvement in The Open Government Partnership (OGP), which is a global effort to promote good governance. The new initiative aims at enhancing the dialogue of the public administration with civil society in various formats, including with regard to the availability of social services, fighting corruption, transparency in the use of the national budget and resources, as well as public and environmental security. Estonia, Lithuania, Finland, Slovakia, as well as other countries in Europe and other regions of the world have already confirmed their participation in this format. The OGP will be overseen by a multi-stakeholder International Steering Committee, comprised of governments including Brazil, Norway, the United Kingdom, the United States, and others. Latvia‟s involvement in the OGP initiative is in line with the national interests of Latvia and is proof to Latvia‟s adherence to democratic values and the principles of good governance. At the same time, the international format of the initiative ensures a direct sharing of experience with other countries in order to address similar challenges. This is also an opportunity to highlight on the global scene Latvia‟s achievements in introducing good governance. The initiative is yet another format for strengthening relations with international partners at the highest level, including with the United States and Brazil. The Open Government Partnership will be formally launched during the UN General Assembly on September 20 in New York, under the chairmanship of US President Barack Obama and Brazilian President Dilma Rousseff. More than 80 countries from the regions all over the world have been invited to join the initiative.

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Latvian President, NATO Secretary General Agree on Main Issues on NATO Agenda During a working visit to Brussels on September 13, President of Latvia Andris Bērziņš met with NATO Secretary General Anders Fogh Rasmussen to discuss issues which are of importance to Latvia and the NATO alliance. The President first thanked the secretary general for his support for issues related to Article 5 of the NATO Treaty, adding that it is necessary to take decisions on the future of NATO air patrols in the Baltic States, because the current decision will expire in 2014. In May of next year, delegates to a NATO summit in Chicago will vote on extending the process. Rasmussen confirmed that this proposal will be made, and he expressed the hope that the air patrols will continue. In discussing Latvia‟s investment in the security of the alliance, President Bērziņš insisted that despite cuts to the national defense budget, Latvia has maintained its investment in the mission in Afghanistan and has also improved its quality by sending military personnel to Afghanistan who can train local security forces. The NATO secretary general thanked Latvia for continuing to take part in the mission under the circumstances of the crisis. Asked about the reduced defense budget under times of difficulty, President Bērziņš told Rasmussen that national spending on defense must not be reduced, adding that as soon as the economic situation recovers, the government may well review the amount of the national budget that is devoted to this purpose. The two officials also discussed the views which Latvia and NATO have with respect to the further development of the alliance, the decisions that will be on the table during the Chicago summit, and the way in which these decisions may affect the alliance‟s future operations. One initiative which the NATO secretary general has proposed and supported is the concept of “smart defense.” This speaks to the merger of efforts among several member states in pursuit of joint projects and a search for solutions that would make it possible to utilize the relevant resources as efficiently as possible. The initiative has to do with the effect of the global crisis on national budgets, speaking to as effective a use of defense resources as possible given the current situation. President Bērziņš said that the continuation of air patrols in the Baltic States after 2014 is an example of “smart defense,” because it allows the Baltic States to develop other aspects of collective defense. NATO, for instance, appreciates Latvia as a country which, on a per capita basis, has a substantial contingent of troops in Afghanistan – 186 troops in all. The President and the NATO secretary general also discussed the transit of non-military cargoes to Afghanistan – a process in which Latvia is the leading country. Delivery agreements with transport firms are open to ISAF countries, and cargoes are delivered from the Rīga port to Afghanistan by rail. The two officials agreed that this is a process which is clearly profitable, with Bērziņš saying that Latvia is also interested in the reverse direction of transit – from Afghanistan to European countries. Link to full text: http://www.president.lv/pk/content/?cat_id=605&art_id=18462.

EU’s Multiannual Financial Framework – Latvia’s Top Priority during Polish Presidency On September 13, the Cabinet of Ministers approved the Informative Report on Latvia‟s Priorities during the Polish Presidency of the European Union. The Informative Report has been prepared through the joint efforts of all the ministries. The Report has two parts. The first part outlines crosscutting priorities for the Government of Latvia: the EU budget for 2014-2020, where Latvia‟s focus lies in Cohesion Policy and the Common Agricultural Policy; sustainable economic growth, employment, and financial stability; energy and transport policy; and, in external relations, the Eastern Partnership. The second part presents major priorities from the point of view of sectoral policies.

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The Polish Presidency initiates the Poland-Denmark-Cyprus trio presidency to be concluded on December 31, 2012. Further information about the EU Multiannual Financial Framework is available on the Ministry of Foreign Affairs website: http://www.mfa.gov.lv/en/eu/FinancialFramework/.

Kristovskis Defends Latvia’s Interests Regarding EU Budget in Brussels On September 12, Foreign Minister Ģirts Valdis Kristovskis participated in a meeting of the European Union (EU) . An issue on the agenda was the next EU Multiannual Financial Framework. The Polish Presidency informed the ministers about the current situation after the informal meeting of the European Affairs Ministers and State Secretaries held on July 28-29 in Sopot, Poland. During the debate, the Minister expressed Latvia‟s opinion on the proposal by the European Commission in relation to the structure of the EU budget. Minister Kristovskis insisted that a separate subcategory of expenditures be retained for the Cohesion Policy. Kristovskis voiced concern about the proposal of the European Commission to increase the number and volume of instruments outside of the EU‟s financial framework, one of the risks to such instruments being unpredictable contributions and a burden on state budget. The main interests of Latvia – the provision of sufficient cohesion funding that would ensure that Latvia could sooner reach the EU average level of development and would create favorable conditions for the growth of Latvia‟s economy, infrastructure development, and achieving fair competition conditions for Latvia‟s farmers in the common European market – were emphasized during the General Affairs Council. At the meeting the Polish Presidency provided the current information on six pieces of draft legislation concerning reinforced economic governance in the EU. During the General Affairs Council meeting the participants were presented with the agenda of the of October 17-18. The European Council will concentrate on the issues of economic policy and its external aspects – summits with the EU strategic partners, the preparation of this year‟s G20 summit in November, and the international UN Climate Change Conference in Durban.

Society 14,085 Voters Abroad Took Part in Early Elections of the 11th Saeima On September 17, Latvian citizens abroad had the possibility to take part in the elections of the 11th Saeima at 77 polling stations in 39 states around the world. When compared to the 10th Saeima elections, 13 additional polling stations had been set up, also in the countries where previously there were none. The largest number of polling stations, 15, was in the United States; there were six the United Kingdom; and five stations each in Germany and in Australia. Voters could also cast their ballots at polling station in Austria, Azerbaijan, Belarus, Belgium, Brazil, Canada, the Czech Republic, China, Denmark, Egypt, Estonia, Finland, France, Greece, Georgia, Israel, Ireland, Japan, Kazakhstan, Lithuania, Luxembourg, the Netherlands, Norway, Poland, Portugal, Russia, Slovenia, Spain, Sweden, Switzerland, Turkey, Ukraine, and Uzbekistan. Twenty one polling stations also offered a possibility to vote by mail, which was used by 539 voters. Disregarding the fact that this was an early election with a very short preparatory period, the election process abroad took place smoothly, without incidents and irregularities. The staff of the Foreign Ministry Consular Department and the Information Technology Department were present at the Central Election Commission and coordinated the election process in polling station abroad by providing the required advice on the election procedure to the commissions at those polling stations. 15

Given the time zone differences between the countries where polling stations were located the Election Day abroad can be said to have lasted for 32 hours. The first polling stations, those in Brisbane and Perth (Australia), welcomed the voters at midnight Latvian time on September 16/17, but the last stations on the west coast of the United States, in San Francisco and Los Angeles, were closed at 8 am Latvian time on September 18. A total of 14085 voters took place in the election of the 11th Saeima abroad. High voter turnout was reported in U.K. (London) – 1407, Sweden (Stockholm) – 871, Ireland (Dublin) – 667, Canada (Toronto) – 602, Norway (Oslo) – 577, Belgium (Brussels) – 553, the Netherlands (the Hague) – 348, Denmark (Copenhagen) – 343, the US (Washington) – 325, Russia (Moscow) – 315, Germany (Berlin) – 309, Estonia ( Tallinn) – 248, Australia (Melbourne) – 235, Poland (Warsaw) – 200, Lithuania ( Vilnius) – 195), France ( Paris) – 192.

Articles of Interest Bloomberg News: “Latvian Parties Agree on Budget, Euro as Coalition Talks Begin” http://www.bloomberg.com/news/2011-09-18/latvian-parties-agree-on-budget-euro-as- coalition-talks-begin.html The Economist: “Snap Election Falls Flat”: http://www.economist.com/blogs/easternapproaches/2011/09/latvias-indecisive-election. The New York Times: “Gains of Pro-Russian Party in Latvia Show Worries on Economy and Graft” http://www.nytimes.com/2011/09/19/world/europe/gains-of-pro-russian-party-show- shift-in-sentiment-in-latvia.html?_r=2. Latvians Online: “Election Turnout Abroad Best Since 1993; London Again Sees Most Voters” http://latviansonline.com/news/article/7751/. Associated Press: “Pro-Russia Party Wins Snap Latvian Election” http://www.nytimes.com/aponline/2011/09/17/world/europe/AP-EU-Latvia- Election.html?_r=2. BBC: “Pro-Russia Party Wins Most Votes in Latvia Election” http://www.bbc.co.uk/news/world-europe-14962617.

THE LATVIAN INSTITUTE The Latvian Institute promotes knowledge about Latvia abroad, produces information materials, and works closely with international media professionals in developing a wide variety of communications projects. Contacts: Pils iela 21 Rīga, LV – 1050, LATVIA Phone: (+371) 67503663 Fax: (+371) 67503669 Email: [email protected] Web: www.li.lv Twitter: www.twitter.com/LatviaInstitute Facebook: www.facebook.com/LatvianInstitute

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