Bloomberg News

Lithuanian President Blocks Opposition Coalition Plan

October 29, 2012

Social Democrat Party Leader Algirdas Butkevicius

Social Democrat party leader Algirdas Butkevicius, right, celebrates with his supporters in Vilnius. Photographer: Petras Malukas/AFP/Getty Images

Lithuania’s president is blocking a plan by the country’s election-winning opposition alliance to form a governing coalition, which may open the way for the current ruling party to remain in power.

The Social Democrats, who won the most seats in parliamentary elections that concluded yesterday, can’t include the Labor Party in the next Cabinet because of alleged voting fraud and accounting irregularities, President Dalia Grybauskaite said today in an e-mail from Vilnius, the capital.

“I’ll support only a political force that can form a majority without the Labor Party,” Grybauskaite said. The president must name a new prime minister and present any new cabinet for parliament’s approval. She has fifteen days to convene the new parliament and two weeks after that to name a prime minister.

The Social Democrats agreed with Labor and the Order & Justice party to proceed with coalition talks after yesterday’s runoff vote gave them a majority in the legislature. They lured voters with spending pledges after budget cuts devised by Prime Minister Andrius Kubilius’s Homeland Union-Christian Democrats intensified the nation’s deepest recession in 2009 and 2010.

Provoking Controversy

The president’s statement “may provoke controversy in the coming days and raise questions about the composition of the new coalition government,” Szilvia Laszlo, an economist at DZ Bank AG, said in an e-mailed note. “Five-year CDS spreads widened and yields rose immediately on the news, and Lithuanian assets may remain vulnerable in the coming days. However, we do not expect uncertainties to be long-lasting.”

The yield on Lithuania’s dollar bond due 2022 rose about 6 basis points to 4.424, according to data compiled by Bloomberg. The cost of insuring government debt against non-payment for five years using credit-default swaps rose to 149 basis points from 135 on Oct. 26. The OMX Vilnius (VILSE) stock index rose 0.1 percent to 350.42. TEO AB LT, the country’s biggest communications company, gained 0.7 percent.

Kubilius’s Chance

With the exclusion of Russian-born entrepreneur Viktor Uspaskich’s Labor Party, the Social Democrats will probably need the support of Kubilius’s Homeland Union or its coalition partner Liberal Movement to ensure a parliamentary majority.

The Social Democrats won 38 seats in the 141-seat parliament, while Homeland Union gained 33 mandates, according to results on the election commission’s website. The Labor Party, which had won the first round of voting on Oct. 14, garnered 29 seats, with Order & Justice getting 11 seats, the Liberal Movement ten and the Lithuanian Polish Election Action eight.

The parties in the current Cabinet agreed that they are ready to negotiate an “alternative coalition” with the Social Democrats, should it fail to form a government with its allies, Eligijus Masiulis, the head of the Liberal Movement, told reporters today before the president’s announcement.

The president’s push against Labor was a surprise, Social Democrat leader Algirdas Butkevicius, the front-runner for the premiership, said after meeting Grybauskaite today, according to the BNS news service.

‘Best Options’

“As a politician I respect the president’s opinion,” Butkevicius said, according to BNS. “We will work with the president to seek the best options and don’t plan to be in conflict with her from day one.”

Besides a criminal case in which Uspaskich and other Labor leaders are accused of fraud, police are investigating 10 cases of voter bribing involving Labor, among 27 total investigations started regarding foul play in the current election, the president’s office said.

Election officials have ordered a rerun in one district, saying a Labor candidate made illegal payments to voters and altered the outcome. The Constitutional Court upheld the decision in a ruling published Oct. 26 on its website, saying parliament needs to amend laws and give the election commission more powers to prevent or punish such offenses.

‘Politically Motivated’

The charges are politically motivated, Uspaskich said at a press conference today. The three opposition parties should stand up to Grybauskaite and defend their planned coalition, Uspaskich and impeached ex-President Rolandas Paksas, the leader of Order & Justice, told a news conference today, according to BNS.

Kubilius’s government, the first to serve a full term since Lithuania regained independence from the Soviet Union 22 years ago, has been trying to avoid the fate of European leaders who lost power in a wave of anti-austerity protests. The policies, designed to shield nations from the euro area’s debt crisis, instead contributed to recessions in economies from Romania to Spain.

The Cabinet cut wages and raised taxes equivalent to 12 percent of gross domestic product in 2009 and 2010 as output plunged by almost a quarter. Plans to narrow this year’s budget deficit to the European Union cap of 3 percent of GDP from 9.4 percent in 2009 have helped push borrowing costs to record lows.

Growth in gross domestic product accelerated to a preliminary 4.4 percent in the third quarter from a year earlier, compared with 2.1 percent growth in the previous three months, the statistics office said today.

Draft Budget

While Lithuania’s GDP will advance 2.5 percent this year and 3 percent in 2013, according to the Finance Ministry, the recession fueled joblessness and sparked an exodus of workers.

The Social Democrats, the Labor Party and Order & Justice are reviewing the 2013 draft budget and preparing a policy plan, including raising the minimum wage to 1,000 litai ($373.55) a month from 850 litai, Butkevicius said at a news conference today.

Adopting the euro in “2015 would be appropriate and realistic for Lithuania considering the macroeconomic situation and forecasts,” Butkevicius said, adding that the Social Democrats also support keeping the budget deficit at 2.5 percent of GDP.

With assistance from Aaron Eglitis in Riga--Editors: Balazs Penz, Andrew Langley

To contact the reporter on this story: Bryan Bradley in Vilnius at bbradley13@bloomberg.net

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


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