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Diplomacy in Action

Latvia (05/28/10)


May 28, 2010

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For the most current version of this Note, see Background Notes A-Z.

PROFILE

Geography
Area: 64,589 sq. km. (24,938 sq. mi.); slightly larger than West Virginia.
Cities (2009): Capital--Riga (713,016). Other cities--Daugavpils (104,857); Liepaja (84,747); Jelgava (65,419); Jurmala (55,870); Ventspils (42,963); Rezekne (35,526).
Terrain: Fertile low-lying plains predominate in central Latvia, highlands in Vidzeme and Latgale to the east, and hilly moraine in the western Kurzeme region. Forests cover one-third of the country, with over 3,000 small lakes and numerous bogs. Although there are more than 12,000 rivers in the country, the only major waterways are the Daugava (Dvina) River, which flows through the center of the country and empties into the Gulf of Rîga, and the Gauja River, which rises in the Vidzeme Upland.
Land use: 45.7% forest and woodland, 18.2% arable land, 10.2% meadows and pastures, 22.3% other.
Climate: Temperate, maritime, with four seasons of almost equal length. Average temperatures in January range from -3°C (26.6°F) in the western, coastal town of Liepaja, to -6.7°C (19.9°F) in the inland town of Daugavpils. Mean temperatures for July range from 16.4°C (61.52°F) in Liepaja to 17.0°C (62.6°F) in Daugavpils. Annual precipitation averages 57 centimeters (23 in.).

People
Nationality: Noun and adjective--Latvian(s).
Population (2010): 2,248,000
Annual population growth rate (2009): 0.57%. Birth rate--9.6/1,000. Death rate--13.3/1,000. Migration rate (2009)--2,688 immigrants; 7,388 emigrants.
Density (2008): 35.2/1 sq. km (this figure is far lower in the rural parts of Latvia). Urban dwellers--67.9%.
Major ethnic groups (2008): Latvians 59.2%, Russians 28.0%, Belarusians 3.7%, Ukrainians 2.5%, Poles 2.4%.
Religions (2003): Lutheran (23.8%), Roman Catholic (18.4%), Russian Orthodox (15.0%).
State language: Latvian. Russian also is spoken by most people.
Education: Years compulsory--9. Enrollment (2009/2010)--174,177 students in 1,548 schools (including pre-school establishments and vocational education institutions) and 112,555 university students. Literacy--99.8%.
Health: Infant mortality rate--7.8/1,000 (2009). Life expectancy (2009)--68.3 yrs. male, 78.1 yrs. female.
Work force (2009, 1.153 million): Industry--15.6%; trade--19.6%; construction--7.7%; agriculture/forestry--9.0%; transport/communications--9.9%; public administration/defense--7.9%; education--8.9%; health care/social welfare--5.4%.

Government
Type: Parliamentary democracy.
Constitution: The law "On the Republic of Latvia Status as a State," passed by Parliament on August 21, 1991, provided for the reinstatement of the 1922 constitution.
Branches: Executive--President (head of state), elected by Parliament every 4 years; Prime Minister (head of government). Legislative--Saeima (100-member parliament). Judicial--Supreme Court; Constitutional Court; civil law system.
Administrative regions: 109 districts and 9 cities.
Principal political parties: People's Party--17 seats, Alliance of Political Organizations (Harmony Center)--18 seats, Greens and Farmers--17 seats, New Era--15 Seats, Latvia's First Party and Latvia's Way Union--10 seats, Civic Union--7 seats, Fatherland and Freedom--5 seats, For Human Rights in United Latvia--5 seats, independent--6 seats.
Suffrage: universal adult (18 years of age).

Economy
GDP (2009 nominal): $26.383 billion.
Annual growth rate (2009): -18.0%.
Annual inflation rate (2009): 3.3%.
Unemployment rate (2009): 17.1%.
Per capita income (2008, PPP): $17,105.
Natural resources: Peat, limestone, dolomite, gypsum, timber.
Agriculture, hunting, and fishing (2.8% of 2009 GDP): Products--cattle, dairy foods, cereals, potatoes, timber. Land--1.83 million hectares, of which 63% is arable, 35% meadow and pasture, and 1% orchards.
Industry, including energy (12.3% of 2009 GDP): Types--metalworking, machinery and tools, light electrical equipment and fittings, textiles and footwear, technological instruments, construction materials, processed foods.
Services (69% of 2009 GDP): Types--retail and wholesale trade; real estate, renting, and business activities; transport, storage, and communication.
Major sectors of the economy (2009): Retail and wholesale trade (13.8% of 2009 GDP); real estate, renting, and business activities (18% of 2009 GDP); manufacturing (8.7% of 2009 GDP); transport, storage, and communication (10.3% of 2009 GDP); construction (5.8% of 2009 GDP); financial intermediation (6.1% of 2009 GDP).
Trade (2008): Exports--$9.423 billion: base metals and articles of base metal 16.7%; wood and articles of wood 16.6%; machinery and mechanical appliances; electrical equipment 12.5%; products of the chemical or allied industries 8.4%; prepared foodstuffs; beverages, spirits and vinegar; tobacco 7.9%; textiles and textile articles 5.5%, vegetable products 5.1%. Major markets--Lithuania 16.7%, Estonia 14%, Russia 10%, Germany 8.1%, Sweden 6.6%, Denmark 4.6%. Imports--$16.015 billion: machinery and mechanical appliances; electrical equipment 18.3%; mineral products 15.6%; vehicles, aircraft, vessels and associated transport equipment 10.7%; base metals and articles of base metal 10.3%; products of the chemical or allied industries 9.7%; prepared foodstuffs; beverages, spirits and vinegar; tobacco 6.8%; plastics and articles thereof; rubber and articles thereof 4.7%; textiles and textile articles 4.0%. Partners--Lithuania 16.5%, Germany 13%, Russia 10.6%, Poland 7.2%, Estonia 7.1%, Sweden 4.4%, Finland 4.4%.

PEOPLE
The behavior of most Latvians reflects the strong cultural and religious influences of centuries-long Germanic and Scandinavian colonization and settlement. They are viewed as self-reliant, independent, persistent, and reserved. Eastern Latvia (Latgale) retains a strong Polish and Russian cultural and linguistic influence. This highly literate society places strong emphasis upon education, which is free and compulsory until age 16. The majority of Latvians belong to the Evangelical Lutheran Church; a sizable minority is Russian Orthodox, and Eastern Latvia is predominantly Roman Catholic.

Historically, Latvia has always had fairly large Russian, Jewish, German, and Polish minorities, but traumatic wartime events, postwar emigration, deportations, and Soviet Russification policies from 1939 to 1989 reduced the percentage of ethnic Latvians in Latvia from 73% to 52%. In an attempt to preserve the Latvian language and prevent ethnic Latvians from becoming a minority in their own country, Latvia enacted language, education, and citizenship laws which require a working proficiency in the Latvian language in order to become a citizen. Such legislation has caused concern among many non-citizen resident Russians, despite Latvian legal guarantees of universal human and civil rights regardless of citizenship.

Written with the Latin alphabet, Latvian is the language of the Latvian people and the official language of the country. It is an inflective language with several analytical forms, three dialects, and German syntactical influence. The oldest known examples of written Latvian are from a 1585 catechism. Latvians and Lithuanians are the only surviving direct descendents of the Baltic peoples who speak languages of the Indo-European family. While Latvia was a member of the U.S.S.R., Russian was the official language, so many Latvians also speak Russian, and the resident Slavic populace generally speaks Russian as a first language.

HISTORY
By the 10th century, the area that is today Latvia was inhabited by several Baltic tribes who had formed their own local governments. In 1054, German sailors who shipwrecked on the Daugava River inhabited the area, which initiated a period of increasing Germanic influence. The Germans named the territory Livonia. In 1201, Riga, the current capital of Latvia, was founded by the Germanic Bishop Alberth of Livonia; the city joined the Hanseatic League in 1285 and began to form important cultural and economic relationships with the rest of Europe. However, the new German nobility enserfed the indigenous people and accorded them only limited trading and property rights.

Subsequent wars and treaties led to Livonia's partition and colonization for centuries. In 1721 Russia took control over the Latvian territories as a result of its victory over Sweden in the Great Northern War. During this time there was little sense of a Latvian national identity, as both serfdom and institutional controls to migration and social mobility limited the boundaries of the indigenous people's intellectual and social geography. However, in the 1860s, the Young Latvian Movement was formed in order to promote the indigenous language against Russification policies and to publicize and counteract the socioeconomic oppression of Latvians, 60% of whom belonged to the landless, urban class. This growing proletariat became fertile ground for the ideas of western European socialism and supported the creation in 1903 of the Latvian Social Democratic Union (LSDU), which continued to champion national interests and Latvia's national self-determination, especially during the failed 1905 Revolution in Russia.

The onset of World War I brought German occupation of the western coastal province of Kurzeme, which Latvians heroically countered with several regiments of riflemen commanded by Czarist generals. The military campaign generally increased Latvian and LSDU support for the Bolsheviks' successful October Revolution in 1917, in the hopes of a "free Latvia within free Russia." These circumstances led to the formation of the Soviet "Iskolat Republic" in the unoccupied section of Latvia. In opposition to this government and to the landed barons' German sympathies stood the Latvian Provisional National Council and the Riga Democratic Bloc. These and other political parties formed the Latvian People's Council, which on November 18, 1918 declared Latvia's independence and formed an army. The new Latvian Army won a decisive battle over the German forces and consolidated that success against Red Army forces on the eastern Latgale front. These developments led to the dissolution of the Soviet Latvian government on January 13, 1920 and to a peace treaty between Latvia and Soviet Russia on August 11 later that year. On September 22, 1921, an independent Latvia was admitted to the League of Nations.

The government, headed by Prime Minister Ulmanis, declared a democratic, parliamentary republic. It recognized Latvian as the official language, granted cultural autonomy to the country's sizeable minorities, and introduced an electoral system into the Latvian constitution, which was adopted in 1922. The ensuing decade witnessed sweeping economic reform, as the war had devastated Latvian agriculture, and most Russian factories had been evacuated to Russia. However, economic depression heightened political turmoil, and, on May 15, 1934, the Prime Minister dismissed the Parliament, banned outspoken and left-wing political parties, and tightened authoritarian state control over Latvian social life and the economy.

The German-Soviet Nonaggression Pact of 1939 steadily forced Latvia under Soviet influence, culminating in Latvia's annexation by the Soviet Union on August 5, 1940. On June 14 of the following year, 15,000 Latvian citizens were forcibly deported and a large number of army officers shot. The subsequent German occupation witnessed the mobilization of many Latvians into Waffen SS legions, while some Latvians joined the Red Army and formed resistance groups, and others fled to the West and East.

An estimated 70,000, or 89.5%, of Latvian Jews were killed in Latvia under Nazi occupation. Up to one-third of Latvia's pre-war population (approximately 630,000 residents) was lost between 1940 and 1954 due to the Holocaust and the Soviet and Nazi occupations.

After World War II, the U.S.S.R. subjected the Latvian republic to a social and economic reorganization which rapidly changed the rural economy to one based on heavy industry, transformed the predominantly Latvian population into a more multiethnic populace, and converted the peasant class into a fully urbanized industrial worker class. As part of the goal to more fully integrate Latvia into the Soviet Union, Stalin deported another 42,000 Latvians and continued to promote the policy of encouraging Soviet immigration to Latvia.

In July 1989, following the dramatic events in East Germany, the Latvian Supreme Soviet adopted a "Declaration of Sovereignty" and amended the Constitution to assert the supremacy of its laws over those of the U.S.S.R. Candidates from the pro-independence party Latvian Popular Front gained a two-thirds majority in the Supreme Council in the March 1990 democratic elections. On May 4, the Council declared its intention to restore full Latvian independence after a "transitional" period; three days later, a Latvian was chosen Prime Minister. Soviet political and military forces tried unsuccessfully to overthrow the Latvian Government. On August 21, 1991, Latvia claimed de facto independence. International recognition, including that of the U.S.S.R., followed. The United States, which had never recognized Latvia's forcible annexation by the U.S.S.R. and continued to accredit a Latvian Ambassador in Washington, recognized Latvia's renewed independence on September 2. In 2007, the United States and Latvia celebrated 85 years of continuous diplomatic relations.

Since regaining its independence, Latvia has rapidly moved away from the political-economic structures and socio-cultural patterns which underlay the Soviet Union. Latvia has maintained and strengthened the democratic, parliamentary republic that it revived in 1990. Through a U.S. initiative, on April 30, 1994, Latvia and Russia signed a troop withdrawal agreement; Russia withdrew the bulk of its troops by August 31 of that year. Except for some large state-owned utilities, Latvia has privatized most sectors of its economy, which enjoyed years of rapid development before slowing down in 2007. By the end of 2008, the Latvian economy was facing a looming recession.

Internationally, Latvia has accomplished a great deal. It became a member of the United Nations (UN) on September 18, 1991, and is a signatory to a number of UN organizations and other international agreements, including the International Civil Aviation Organization (ICAO), the International Monetary Fund (IMF), and the World Bank. It is also a member of the Organization on Security and Cooperation in Europe (OSCE) and officially became a member of the North Atlantic Treaty Organization (NATO) on March 29, 2004. On May 1, 2004 Latvia joined the European Union (EU).

Since 2004, Latvia has emerged as a significant player in foreign affairs, standing out as a successful post-Soviet transition society. Strong memories of occupation and oppression motivate Latvia to reach out to countries struggling to move beyond authoritarian politics and state-controlled economies. It has worked closely with the U.S. and the EU to promote democracy in Ukraine, Belarus, Moldova, and Georgia. Latvia also supports pro-market, pro-free-trade policies in European and international organizations. It was the European Union's fastest-growing economy in 2004 through 2006.

Latvia has developed a policy of international security cooperation through participation in crisis management and peacekeeping operations. In 2006, Latvia deployed over 10% of its active duty military to support UN, NATO, and coalition military operations. That percentage is well above the European average in terms of per capita contributions. In 2008, Latvia increased its participation in the NATO International Security Assistance Force (ISAF) in Afghanistan to 170 soldiers and planned to maintain the number in 2009, despite its economic challenges. While Latvia was active in the Balkans, budget cuts forced the end of its operations there in 2009. Latvia supported the NATO mission in Kosovo with peacekeepers, and the European Union Force (EUFOR) mission in Bosnia with liaison officers. Latvia also contributed to the EU and OSCE missions to Georgia. In November 2006, Latvia hosted a NATO Summit in its capital, Riga, and in May 2010, it hosted a NATO Parliamentary Assembly.

GOVERNMENT AND POLITICAL CONDITIONS
The highest organ of state authority in Latvia is the Saeima, a unicameral legislative body of 100 members who are elected by direct popular vote to serve four-year terms. The Saeima initiates and approves legislation sponsored by the Prime Minister. The Prime Minister is the head of government and has full responsibility and control over the Cabinet. The President, who is elected by the Saeima every four years, holds a primarily ceremonial role as head of state, though the President must sign each law into force and has the power to return laws to the Saeima twice for review and revision. The President also has the power to call for a referendum on legislation that the Saeima refuses to change after twice being sent back.

In the autumn of 1991 Latvia re-implemented significant portions of its 1922 constitution, and in the spring of 1993 the government took a census to determine eligibility for citizenship. Latvia finalized a citizenship and naturalization law in the summer of 1994, which was further liberalized in 1998. By law, those who were Latvian citizens in 1940 and their descendants (regardless of ethnicity) could claim citizenship. Forty-one percent of Latvia's population is ethnically non-Latvian, yet almost three-fourths of all residents are citizens of Latvia. Requirements for naturalization include a conversational knowledge of Latvian, a loyalty oath, renunciation of former citizenship, 5 years of residency in Latvia, and a basic knowledge of Latvian history. Dual citizenship is allowed for those who were forced to leave Latvia during the Soviet occupation and adopted another citizenship. Convicted criminals, agents of Soviet intelligence services, and certain other groups are excluded from becoming citizens.

On March 19, 1991 the Supreme Council passed a law explicitly guaranteeing "equal rights to all nationalities and ethnic groups" and "to all permanent residents in the Republic regardless of their nationality, equal rights to work and wages." In addition, the law prohibits "any activity directed toward nationality discrimination or the promotion of national superiority or hatred."

In the June 5-6, 1993 elections, in which more than 90% of the electorate participated, eight of Latvia's 23 registered political parties passed the 5% threshold to enter parliament. The centrist party Latvia's Way received a 33% plurality of votes and joined the Farmer's Union to head a center-right-wing coalition government.

The September 30-October 1, 1995 elections resulted in a deeply fragmented parliament with nine parties represented and the largest party commanding only 18 of 100 seats. Attempts to form right-of-center and leftist governments failed; seven weeks after the election, a broad but fractious coalition government of six of the nine parties was voted into office under Prime Minister Andris Skele, a popular, nonpartisan businessman.

In the 1998 elections, the Latvian party structure began to consolidate, with only six parties obtaining seats in the Saeima. Andris Skele's newly formed People's Party garnered a plurality with 24 seats. Though the election represented a victory for the center-right, personality conflicts and scandals within the two largest right-of-center parties--Latvia's Way and the People's Party--prevented stable coalitions from forming. Two shaky governments quickly collapsed in less than a year. In May 2000, a compromise candidate was found in the Latvia's Way mayor of Riga, Andris Berzins. His four-party coalition lasted until parliamentary elections in October 2002. Those elections left Latvia's Way, for the first time since 1993, with no seats in parliament. The New Era Party, which ran on an anti-corruption platform, gained the most seats and formed a four-party coalition government until the abrupt resignation of the Prime Minister in February 2004 over issues relating to personalities and management of the ruling coalition.

In 1999, the Saeima elected Vaira Vike-Freiberga, a compromise candidate with no party affiliation, to the presidency. Though born in Riga in 1937, she settled in Canada during the years of the Soviet occupation, becoming a well-respected academic on the subject of Latvian culture and psychology. Following her election, she became one of the most popular political figures in Latvia. She was overwhelmingly re-elected by parliament for another four-year term in June 2003. She was also credited with bringing Latvia to the world's stage and serving as an important check on the ruling coalitions.

With the tacit support of leftist parties, a minority government led by Greens and Farmers Union leader Indulis Emsis took office on March 9, 2004. The new government focused on smoothing Latvia's entry into NATO and the European Union, which took place in the first half of 2004. The government collapsed on October 28, 2004 after parliament voted against the 2005 budget. A new coalition government, led by Prime Minister Aigars Kalvitis, took office on December 2, 2004 and was re-elected on October 7, 2006. Those election results marked the first time that an incumbent administration won re-election in the history of independent Latvia.

In July 2007, the Saeima elected Valdis Zatlers, another candidate with no political affiliation, to the presidency. An orthopedic surgeon by trade, Zatlers was the director of the Latvian Traumatology and Orthopedics Center until his election and had no prior political experience. His start was clouded by charges that he had accepted supplemental payments for medical services on which he did not pay taxes. Zatlers complied with investigations which in the end concluded he had committed no breaches of law.

In December 2007, Prime Minister Kalvitis resigned after his government came under intense criticism for attempting to dismiss the head of the anti-corruption bureau. President Zatlers nominated veteran politician Ivars Godmanis to form a new government. Godmanis’ governing coalition consisted of the same four center-right parties that made up the previous government.

On December 23, 2008, the International Monetary Fund approved a $2.35 billion rescue loan for Latvia. The loan was part of a $10.5 billion bailout that included additional funding from the European Commission (EC), World Bank, and the Scandinavian countries. The IMF funds were intended to “stem the loss of bank deposits and international reserves and to take fiscal measures to limit the widening of the budget deficit.” On January 13, 2009, the worsening economic crisis sparked an unprecedented riot when, after a political rally to protest government actions on the economy, hundreds of disgruntled citizens took to the streets of Riga, with a smaller group smashing police cars and windows. On February 20, Prime Minister Godmanis resigned amidst growing public distrust and tension over Latvia’s economic decline.

On February 26, President Zatlers nominated European Parliament member and former Finance Minister Valdis Dombrovskis (New Era) to be Prime Minister. Dombrovskis took office on March 13, 2009, when the Saeima approved his cabinet. For the next year his coalition was made up of five center-right parties; three of the previous four coalition partners, plus New Era and Civic Union. After assuming office, Dombrovskis announced that the country was “on the verge of bankruptcy” and that major budget cuts would have to be made to secure financial stability. Accordingly, Latvia implemented $1 billion in budget cuts in 2009 and another $1 billion in cuts in 2010. In March 2010, the largest member of the coalition pulled out due to disputes over how to handle Latvia’s economic crisis, leaving Latvia with a minority government.

The next parliamentary election is scheduled to take place in October 2010.

Latvia's flag consists of two horizontal, maroon bands of equal width, divided by a white stripe one-half the width. The national holiday is November 18, Independence Day, which marks Latvia's 1918 independence.

Principal Government Officials
President--Valdis Zatlers
Prime Minister--Valdis Dombrovskis, New Era Party
Minister of Defense--Imants Liegis, Civic Union
Minister of Foreign Affairs--Aivis Ronis, Independent
Minister of Economy--Artis Kampars, New Era Party
Minister of Interior--Linda Murniece, New Era Party
Minister of Education and Science--Tatjana Koke, Greens and Farmers Union
Minister of Agriculture--Janis Duklavs, Independent
Minister of Welfare--Uldis Augulis, Greens and Farmers Union
Minister of Justice--Imants Liegis, Civic Union
Minister of Culture--Ints Dalderis, Independent
Minister of Finance--Einars Repse, New Era Party
Minister of Environment--Raimonds Vejonis, Greens and Farmers Union
Minister of Health--Didzis Gavars, Independent
Minister of Transport--Kaspars Gerhards, For Fatherland and Freedom
Minister for Regional Development and Local Governments--Dagnija Stake, Greens and Farmers Union
Ambassador to the United States--Andrejs Pildegovics

Latvia maintains an embassy in the United States at 2306 Massachusetts Ave NW, Washington DC 20008 [tel: (202) 328-2840].

ECONOMY
For centuries under Hanseatic and German influence and then during its inter-war independence, Latvia used its geographic location as an important East-West commercial and trading center. Industry served local markets, while timber, paper, and agricultural products supplied Latvia's main exports. The years of Soviet occupation tended to integrate Latvia's economy into the U.S.S.R. in order to serve that empire's large internal industrial needs. Since reestablishing its independence, Latvia has proceeded with market-oriented reforms. Its freely traded currency, the Lat, was introduced in 1993 and has held steady or appreciated against major world currencies. Before late 2007, Latvia's economic performance was among the best of the EU accession countries. Real per capita GDP had more than doubled compared to its 1995 level; the economy was expanding rapidly, with GDP growth hitting 12.2% in 2006. In 2008, however, unwinding domestic imbalances combined with adverse external factors to bring a halt to Latvia’s economic growth. Its GDP shrank by 4.6% in 2008 and by a staggering 18% (year on year) in 2009. The recession is causing widespread unemployment, especially in Latvia’s eastern regions. The harmonized unemployment rate in September 2009 reached 19.7%. Latvia registered some of the highest inflation rates in the EU in recent years, which delayed prospects of introducing the Euro currency. As of November 2009, Latvia was experiencing deflation as a result of rapidly falling demand. In response to the worsening macroeconomic situation, in late December 2008 Latvia signed a 27-month Stand-by Arrangement with the IMF, the EC, and several other partners for an assistance package totaling approximately EUR 7.5 billion ($10.5 billion). The program is centered on restoring competitiveness through economic adjustment, fiscal prudence, and factor price deflation. At the same time, Latvia's current account balance has improved markedly. From 2006 through 2008, it experienced a deficit ranging from 12.6% to 22.5% of GDP, but since early 2009 Latvia’s exports have outnumbered its imports.

Independence forced Latvia into a precarious position regarding its energy supply. With the exception of peat and timber, Latvia had no significant domestic energy resources and received 93% of its imported energy from Soviet republics. Latvia has sought ways to diversify its energy sources and to increase energy conservation. In August 2001, the Kegums hydroelectric power plant was reopened, contributing to Latvia's ability to supply 25% of its energy that year. On May 6, 2009, state-owned energy utility Latvenergo opened the first reconstructed power unit of the Riga thermal power station No 2. The reconstructed power plant provides 600 megawatts (Mw) electrical and 1,123 Mw thermal capacity. The new power unit (420 Mw) has increased the power efficiency of the plant and is supposed to decrease Latvia’s power supply dependency by 30%. The expectations are that the new power unit will reduce the import of electricity by 1,400 gigawatt hours per year on average. Latvia is also looking to regional cooperation arrangements to diversify its energy supplies. With the other Baltic states, it plans to create an electricity network able to operate independently of its Russian counterpart. It is planning major infrastructure projects to provide energy supplies via Scandinavia, and it is working with Estonia, Lithuania, and Poland to build a new nuclear power station in Lithuania.

All of Latvia’s previously state-owned small and medium enterprises have been privatized, leaving in state hands the electric utility, the Latvian railway company, and the Latvian postal system, as well as state shares in several politically sensitive concerns. Despite the lack of transparency of the early stages of the privatization process and certain difficulties in privatization of some of the largest companies, Latvian privatization efforts have led to the development of a dynamic and prosperous private sector, which accounts for approximately 70% of the country's GDP.

In the last few years, Latvia has implemented many positive reforms in the business sphere (ranking 27th worldwide on the ease of doing business there, according to the World Bank Doing Business 2010 report). Most reforms deal with licensing, taxes, and business closures. In the 2005/2006 period, Latvia made it easier for businesses to comply with building requirements and reduced the number of licenses and permits required. In addition, Latvia launched an electronic tax filing system and improved the regulation of bankruptcy administrators in order to reduce corruption.

In response to the economic crisis, foreign direct investment (FDI) flows are drying up, but FDI stock remains relatively high as a result of a high level of Western and Eastern investment following Latvia’s accession to the EU. Representing 4.2% of Latvia's total foreign direct investment, the U.S. FDI stock in Latvia stood at $461 million at the end of the second quarter of 2008, according to the Bank of Latvia's figures. In 2008, U.S. goods and services accounted for 1% of Latvia's total imports, while exports to the United States accounted for 1.6% of Latvia's total exports. Latvia has been a member of the World Trade Organization since 1999. Latvia and the United States have signed treaties on investment, trade, intellectual property protection, and avoidance of double taxation.

In the long term, Latvia’s return to economic growth will depend on comprehensive structural reforms, economic adjustment and improvements to the business environment, particularly the drive to reduce corruption and strengthen the rule of law, and on Latvia's ability to use the opportunities presented by EU membership.

DEFENSE
Latvia's defense concept is based upon four basic pillars: collective defense as a member of NATO, professionalization of the armed forces, support and coordination with civil society, and international military cooperation. The armed forces consist of the regular forces, a home guard called “Zemessardze”, and the Reserve. The regular forces are composed of the land forces, an air force focused on air surveillance and search and rescue, and naval forces focused on coastal surveillance, assertion of sovereignty, mine countermeasures, search and rescue, and environmental protection. Additionally, there are some other minor units adding to the total armed forces personnel of 5,000. Zemessardze is an autonomous 10,600-man-strong volunteer reserve organization which performs traditional national-guard duties such as crisis response and support for military operations. The Latvian National Armed Forces became fully professional in November 2006. Defense spending has risen in recent years, and the government has committed 2% of its GDP to defense spending through 2013. However, in view of current economic problems, spending in the military sector is unlikely to reach that goal.

FOREIGN RELATIONS
After regaining its independence, Latvia began to work at reintegrating into the West. In 1991, Latvia joined the Organization on Security and Cooperation in Europe (OSCE) and became a member of the United Nations (UN). It is party to a number of UN organizations as well as other international agreements including the International Civil Aviation Organization (ICAO), the International Monetary Fund (IMF), and the World Bank. Since 2004, Latvia has been an active member of the North Atlantic Treaty Organization (NATO) and the European Union (EU).

Latvia has emerged as a significant international player, courageously supporting peace and democracy world-wide. Per capita, it is one of the largest contributors to international military operations. It has deployed troops to Iraq, Afghanistan, Georgia, and the Balkans. It also works closely with the U.S. and the EU to support and promote democracy in the former Soviet Union states of Ukraine, Belarus, Moldova, and Georgia. A testament to the close relationship between the U.S. and Latvia is the fact that President George W. Bush visited the country twice, the second time to attend the NATO Summit held in Riga on November 28-29, 2006.

Russia has expressed concern over how Latvia's language and naturalization laws affect Latvia's Russian-speaking population. Russians comprised 28% of the population in 2008. In turn, Latvia is interested in the welfare of ethnic Latvians still residing in Russia. Latvia and Russia signed a border treaty agreement in March 2007. It was ratified by both sides and went into effect at the end of 2007.

Latvia maintains embassies in the United States, Austria, Azerbaijan, Belarus, Belgium, Canada, the People's Republic of China, the Czech Republic, Denmark, Egypt, Estonia, Finland, France, Germany, Georgia, Greece, Hungary, Ireland, Israel, Italy, Japan, Kazakhstan, Lithuania, the Netherlands, Norway, Poland, Portugal, Russia, Slovenia, Spain, Sweden, Turkey, Ukraine, the United Kingdom, and Uzbekistan. It also operates missions to the United Nations in New York City and Geneva, the European Council, the European Union, the Chemical Weapons Nonproliferation Organization, NATO, the Organization for Security and Cooperation in Europe, the World Trade Organization, UNESCO, and the UN Council on Food and Agriculture.

Latvia has a Consulate General in Russia; Consulates in Belarus and Russia; Honorary Consulates General in Brazil, Denmark, Italy, Cyprus, Lebanon, Norway, Sri Lanka, Turkey, and Venezuela; and Honorary Consulates in USA, Argentina, Armenia, Australia, Austria,, Belgium, Bulgaria, Canada, Chile, Columbia, Croatia, Cyprus, Denmark, Dominican Republic, Egypt, Finland, France, Georgia, Germany, Greece, Hong Kong, Iceland, India, Indonesia Ireland, Israel, Italy, Jamaica, Japan, Jordan, Kazakhstan, Kyrgyzstan, Luxembourg, Malta, Morocco, Macedonia, Mexico, Moldova, the Netherlands, New Zealand, Norway, Pakistan, Panama, Peru, Philippines, Poland, Portugal, San Marino, South Africa, South Korea, Spain, Syria, Sweden, Switzerland, Thailand, Tunisia, Turkey, Ukraine, and the United Kingdom.

U.S.-LATVIAN RELATIONS
The United States established diplomatic relations with Latvia on July 28, 1922. The U.S. Legation in Riga was officially established on November 13, 1922 and served as the headquarters for U.S. representation in the Baltics during the interwar era. The Soviet invasion forced the closure of the legation on September 5, 1940, but Latvian representation in the United States has continued uninterrupted since 1922. The United States never recognized the forcible incorporation of Latvia into the U.S.S.R. and views the present Government of Latvia as a legal continuation of the interwar republic.

Latvia and the United States have signed treaties on investment, trade, intellectual property protection, extradition, mutual legal assistance, and avoidance of double taxation. Latvia has enjoyed most-favored-nation treatment with the United States since December 1991. In 2008, Latvia joined the visa waiver program.

Principal U.S. Embassy Officials
Ambassador--Judith Garber
Deputy Chief of Mission--Bruce Rogers
Political/Economic Counselor--Brian Phipps
Management Counselor--Eric Kettner
Consul--Timothy Buckley
Public Affairs Chief--Ryan Roberts
Defense Attaché--Lt. Col. Colin Smith

The U.S. Embassy in Latvia is located at Raina Boulevard 7, Riga [tel. (371) 6703-6200].



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