Bloomberg News

Latvia Referendum Won’t Postpone Bond Sale, Dombrovskis Says

June 01, 2011

(Updates bond and CDS prices in sixth, seventh paragraphs.)

June 1 (Bloomberg) -- Latvia won’t postpone its first international bond sale since 2008 because of a referendum to dissolve parliament, Prime Minister Valdis Dombrovskis said.

Market reaction hasn’t been “too negative” since May 28, when President Valdis Zatlers called for the public vote, Dombrovskis said in an interview late yesterday in Riga, the capital. The government and the central bank will start investor meetings this week to sell dollar bonds, he said.

“We aren’t changing our plans,” Dombrovskis said. “Of course, the president’s decision is going to cost us money. So far it seems like this will not be too costly.”

Zatlers urged Latvians to dissolve the parliament elected in October after lawmakers failed to lift the immunity of a member targeted by an anti-corruption probe. Dombrovskis said he supports the call for new elections and backs Zatlers bid for re-election in a parliamentary vote tomorrow.

Latvia plans to raise as much as 1.5 billion euros ($2.2 billion) through international bond sales this year as it prepares to begin repaying the 4.4 billion euros it borrowed under a bailout led by the European Union and International Monetary Fund. It expects to complete the program this year.

The yield on Latvia’s 2018 Eurobonds bonds sold in 2008, the country’s last international offering, fell about 1 basis point today to 4.96 percent, after rising 5 basis points yesterday. The yield rose to almost 12 percent in March 2009. A basis point is the equivalent of 0.01 percentage point.

Credit Ratings

Latvia’s five-year credit default swaps, which investors use to protect against default or speculate on a borrower’s creditworthiness, were little changed today at about 195 basis points, according to data provider CMA. Latvian CDS prices reached almost 1,200 basis points in March 2009.

The referendum won’t have an immediate impact on Latvia’s BB+ credit rating, one step below investment grade, which has a positive outlook, Standard & Poor’s said yesterday. Fitch Ratings and Moody’s Investors Service assign their lowest investment grades to the country’s debt.

The plebiscite, which doesn’t require a minimum turnout to be binding, is scheduled for July 23 and may pave the way for parliamentary elections two months later if approved by voters.

Lawmakers’ failure to lift the immunity of the member of parliament shows that the legislature is comfortable in an “atmosphere of political schemes, lies and impunity,” Zatlers said when he called for the referendum.

‘Surprise to Everyone’

“I think it came as a surprise to everyone,” Dombrovskis said. “We had a meeting that was the very same day. The president didn’t clearly tell about his intention.”

Dombrovskis has been prime minister since March 2009, rising to the post when the previous government collapsed four months after it had sought its 7.5 billion-euro bailout.

Latvia, which implemented tax increases and spending cuts equal to about 16 percent of gross domestic product since the crisis began, plans further measures to narrow the budget deficit to 2.5 percent next year and adopt the euro in 2014.

The measures may harm Dombrovskis’ Unity bloc in an early election. The party won 33 seats in the 100-member legislature in October. The two-party coalition government has 55 seats.

“Since the election, we have had to continue Latvia’s economic stabilization program, which people know isn’t going to be popular,” he said. Still, “we think that the president took an important decision to substantially reduce the role or oligarchs in politics.”

--Editors: Willy Morris, Balazs Penz

To contact the reporter on this story: Aaron Eglitis in Riga at aeglitis@bloomberg.net

To contact the editor responsible for this story: Balazs Penz at bpenz@bloomberg.net


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