Lithuania and Latvia had similar fates. The National Revivals started in the 19th century (although Lithuanians were more opposed to Poland, whereas Latvians were combating Russification efforts). The opportunity to set themselves free from occupation arose during World War I. Lithuania was the first Baltic country to declare independence. Latvia did so a little bit later, on 18 November 1918, when World War I had already ended (on 11 November 1918).
After the declaration of independence, both countries had to wait for international recognition and strived for complete autonomy. Both of them also had to face foreign enemies: the Red Army, later – the Bermontians and, in case of Lithuania, Poland. However, the countries were not actively cooperating.
In 1918–1919, the Bolsheviks managed to occupy around two thirds of Lithuania’s territory and almost the entire Latvia, except for Liepāja. Both countries hastily began gathering their own armies to oppose the Bolsheviks. They quickly realised that it was only possible if they worked together. In January 1919, during the Paris Peace Conference after the end of World War I, representatives of the Lithuanian, Latvian and Estonian delegations signed a joint note asking to acknowledge their sovereignty and later continued cooperation and coordinated their actions. Cooperation was needed both due to a common enemy and economic reasons. Until the Klaipėda Revolt of 1923, Lithuania did not have access to the sea, thus most of the maritime trade was carried out through Liepāja port in Latvia, where it was also expected to receive support from the allies in Independence Battles. After a threat to lose access to the port emerged, on 28 February 1919, Kārlis Ulmanis, Head of the Latvian government, signed an agreement with the first Lithuanian-capital bank (the Lithuanian Bank of Commerce and Industry ) which was responsible for the most important state monetary transactions. Under this agreement, the Lithuanian government guaranteed a 5 million mark loan to its neighbour. In exchange, Lithuanians were granted access to Liepāja port on very favourable conditions. This became a sort of window to Europe and the two neighbouring countries began cooperating more closely. However, this friendship was not very stable, as a lot depended on territorial issues, Latvia’s friendship (or lack thereof) with Poland and so on. Therefore, it could be said that the relations between interwar-period Latvia and Lithuania were in general friendly, yet more often quite cold. During this period, Latvia did not repay the loan.
The countries suffered the same fate once again in 1940, when they were both occupied by the Soviet Union almost at the same time (Lithuania – on 15 June, and Latvia – on 17 June). During the occupation, both countries had functioning diplomatic missions abroad. Eventually, the loan was recalled once again. How did this happen? When the Soviet Union occupied Lithuania, its assets, as well as banks, were nationalised. The occupational government also took over the Bank of Lithuania and its assets. One of the main objectives of the Communist government was to obtain Lithuania’s gold reserves that were mostly stored abroad (in the US, Great Britain, France, etc.). Foreign governments were addressed with a request to return the gold. Most of them refused to do so because they did not recognise the occupation of Lithuania.
For example, the US Federal Reserve Bank stored 2,493.61 kg of Lithuania’s gold until the occupation of 1940. After 1940, the US President Franklin Delano Roosevelt issued a freezing order, whereby any operation had to be approved by the Secretary of the US Treasury Department. After a while, permission to use the accounts and gold was given to the Lithuanian Diplomatic Service that operated in emigration. The money received for the sold gold was used to finance diplomatic activity and cover expenses. It was distributed to all Lithuanian legations and consulates that had survived. It should be noted that this was not a great decision. Latvian and Estonian diplomats were smarter with the gold at their disposal, as they invested it and used the interest to support their diplomatic missions. In 1980, the money received for the sold gold ran out, thus the Lithuanian Diplomatic Service faced large financial troubles. On 30 January 1980, these issues were solved when, with the US State Department acting as a mediator, an agreement was reached with Latvia’s Diplomatic Service in 1981 for it to loan around 150,000 US dollars a year to support the Embassy of the Republic of Lithuania in Washington. From 1 January 1981 to 1 August 1991, Latvians allotted 1,523,000 US dollars to this cause. This was also supported by historical memory, namely – the loan that Lithuania gave to Latvia on 1 March 1919.
For a few years after Lithuania’s independence was reinstated, neither country raised the question of repaying the loan. It was first discussed in 1995. In 2005, the governments of Lithuania and Latvia signed an agreement on the repayment of this loan. Lithuania’s government acknowledged that its debt to Latvia is equal to the amount of money that it received to support the Embassy in Washington from 1981 to 1991, comprising a total of 1,523,000 US dollars. The countries agreed that this amount would not be indexed and should be repaid without interest.
