Latvia on brink of bankruptcy, warns PM nominee

 

LATVIA MUST appoint a new government and implement deep budget cuts quickly to avoid bankruptcy, the Baltic state’s prime minister-designate said yesterday.

Valdis Dombrovskis delivered his warning after Latvian president Valdis Zatlers nominated him as premier, citing his solid reputation in his current role as a member of the European Parliament and in his former post as Latvia’s finance minister, as well as his broad popularity among the country’s political parties.

Mr Dombrovskis (37) immediately emphasised the need for constructive talks between bickering factions to form a coalition capable of digging the country out of the economic crisis that toppled the previous government last week. He also said Latvia needed to make further budget cuts of almost €1 billion – on top of existing spending reductions of some €1.4 billion – to secure full payment of a €7.5 billion bailout agreed last year with the International Monetary Fund (IMF) and the European Union.

The former Soviet republic, which won independence from Moscow in 1991, has so far received about €1.6 billion from the lenders.

“The receipt of further financial support depends on budget amendments being passed soon, [and] on the budget deficit being reduced to the level agreed [with the IMF and EU],” said Mr Dombrovskis.

“The alternative is state bankruptcy,” he said, adding that the treasury may only have enough money to meet its obligations for “a couple of months”.

“We need agreement among our political parties to cut the budget . . . There are no easy decisions here,” he warned.

Latvia, which joined the EU in 2004, had enjoyed double-digit growth in recent years. But its economy is expected to contract by 12 per cent in 2009, with unemployment soaring to 12.7 per cent.

Anti-government protests sparked riots last month in the capital, Riga.

Mr Zatlers said at least five parties had already pledged to support Mr Dombrovskis’ candidacy, and the would-be premier gave himself a fortnight to form a coalition government.

The new cabinet would be the 15th to emerge from Latvia’s fractious political scene since 1991.