Bloomberg News

Latvian Government Wobbles as Six Defect From Zatlers’ Party

October 17, 2011

(Updates with failed vote for parliamentary speaker in fifth paragraph.)

Oct. 17 (Bloomberg) -- Latvia’s coalition government, which was expected to be confirmed this week, lost its majority after six members of the Reform Party quit, leaving Premier Valdis Dombrovskis with exactly half of parliament’s seats.

The six said they were leaving due to “undemocratic decision making” in the party, according to a press release published yesterday, adding they will support the Cabinet, which will have 50 of the legislature’s 100 seats. The new parliament, elected last month, began its first session today.

Since turning to the European Commission and the International Monetary Fund for a 7.5 billion-euro ($10.4 billion) loan in 2008, the Baltic country has lowered spending and raised taxes equal to about 16 percent of gross domestic product. It plans further cuts in next year’s budget to lower the deficit to 2.5 percent of GDP to adopt the euro in 2014.

“We don’t have time to play little games, we have work to do,” President Andris Berzins, who must name the next prime minister, told lawmakers today. “In any case we can’t talk about working for three years,” he said in an interview with Latvijas Radio before his remarks in parliament.

Failed Vote

In a sign of problems within the coalition, former President Valdis Zatlers failed to garner enough votes in two separate secret ballots to become speaker of the parliament today, a position the parties agreed he would get.

Dombrovskis’s Unity party and the Reform Party formed a coalition together with the National Alliance, which planned to have 56 votes, instead of a government with Harmony Center, which appeals to the country’s Russian minority. That grouping would have given the three-party government 73 seats.

About 2,000 supporters of Harmony protested outside of parliament today after the party, which won the most seats with 31, was left out of coalition talks, the Baltic News Service reported, citing police estimates.

Zatlers, leader of the Reform Party, has refused to negotiate with the Greens and Farmers Union due to their connection with Aivars Lembergs, the mayor of Ventspils, who is accused of money laundering and abuse of office. Lembergs denies all the charges.

The defections “revive the chances of the Greens and Farmers being in some sort of coalition,” Nils Muiznieks, a political scientist at the University of Latvia, said by phone. “How it will play out is completely up for grabs now.”

The yield on Latvia’s 400 million-euro bond due 2018 fell 3 basis points to 4.79 percent today. Latvian five-year credit- default swaps, used to speculate on a borrower’s credit worthiness, were little changed at 307 basis points on Oct. 14, according to CMA Datavision prices.

--Editors: Alan Crosby, James M. Gomez

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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