Latvia May Elect New Prime Minister After Referendum
Valdis Zatlers
Adrian Moser/Bloomberg
Almost 95 percent of voters on July 23 backed former President Valdis Zatlers’s call to dismiss lawmakers as part of an anti-corruption drive.
Almost 95 percent of voters on July 23 backed former President Valdis Zatlers’s call to dismiss lawmakers as part of an anti-corruption drive. Photographer: Adrian Moser/Bloomberg
(Corrects currency conversion in 14th paragraph of story published on July 25.)
Latvians may elect a new premier to lead the country’s deficit-cutting government after a weekend referendum dissolved parliament and propelled a new party to the top of opinion polls.
Almost 95 percent of voters on July 23 backed former President Valdis Zatlers’s call to dismiss lawmakers as part of an anti-corruption drive. The wave that swept away parliament drove Zatlers’s Reform Party, founded in June, into a first- place tie with the pro-Russian Harmony Center in opinion polls, followed by Premier Valdis Dombrovskis’s Unity party.
Zatlers and Dombrovskis are seeking to weaken the so-called oligarchs who amassed wealth and power as the Baltic nation sold state assets after the Soviet Union collapsed. The former president, who has endorsed Dombrovskis’s austerity policies, has said he wants to nominate his own candidate for prime minister after the Sept. 17 general election.
“It is most likely that we will see a reformist government coalition being formed after the elections,” Copenhagen-based Danske Bank A/S said today in an e-mailed note to investors. “We would also stress that, while the Unity Party and Dombrovskis are proven reformers there is considerable uncertainty about the actual policies of the Reform Party.”
The Reform Party and Harmony Center, which represents Russian speakers who make up almost a third of the population, were each backed by 17.5 percent of those surveyed in a Latvijas Fakti poll published July 22 by the Baltic News Service. Unity ranked third at 11.7 percent, down from 14.7 percent in June.
Austerity Measures
The Union of Greens & Farmers, led by former Ventspils Mayor Aivars Lembergs, one of three men Zatlers named as oligarchs when he called the referendum on May 28, was supported by 8.1 percent of the 1,000 people surveyed, followed by the National Alliance at 6.3 percent. No margin of error was given.
Unity expects to join the Reform Party in the next government and wants to continue its policy of cutting the budget deficit while keeping so-called oligarchs out of power, said Defense Minister Artis Pabriks, a party board member.
Dombrovskis helped implement austerity measures equal to 16 percent of gross domestic product after Latvia turned to the European Union and International Monetary Fund for a 7.5 billion-euro ($10.6 billion) bailout in 2008. The country returned to credit markets last month, with investors seeking seven times the $500 million of 10-year bonds on offer.
No Political Turmoil
“We do not expect significant political turmoil over the coming months,” said Annika Lindblad, a Helsinki-based analyst at Nordea AB, in an e-mailed note. “The financial situation of the state is stable at the moment and the events in late May -- the dissolution order and the presidential elections -- did not rock the boat.”
Latvia’s five-year credit-default swaps, used to protect against non-payment or speculate on a the creditworthiness of a borrower, rose 7 basis points to 219 at 10:30 a.m. in London, according to data provider CMA. A basis point is 0.01 percentage point. Latvia’s debt is rated BBB- by Fitch Ratings, the lowest investment grade and on par with Portugal and Hungary.
Latvia’s “biggest worry” is inflation as it recovers after the economy shrank by almost a quarter during the global financial crisis, according to the International Monetary Fund. The economy will expand 3.3 percent this year, after returning to growth in the third quarter of 2010, the IMF estimates.
Unity and Reform probably won’t get the necessary 51 seats in the 100-member parliament to form a government, forcing them to include the “relatively radical” National Alliance or Harmony Center in a coalition, Pabriks said by phone yesterday.
‘No Choice’
“The government won’t have a choice but to form a coalition with nationalist forces,” because the differences with Harmony over the Soviet-era may be impossible to bridge, he said. That may be “risky as nobody can predict whether they will stick to their radical views or become moderate.”
Latvia needs to find an additional 110 million lati ($221 million) of savings to meet its pledge to bring the budget deficit below the EU limit of 3 percent of GDP next year, qualify for euro adoption in 2014, Dombrovskis said July 6. The shortfall was 7.6 percent in 2010.
The deficit-cutting program is evidence of either the “silliness” or the “guile” of international lenders, Janis Urbanovics, head of Harmony Center’s parliamentary group, said yesterday by phone.
Economists who claim the economy is stable are “enemies or simply incompetent,” Urbanovics said. Latvia should alter its IMF program and pursue closer cooperation with Russia, he said.
The next government may revolve around Zatlers, 56, whose lack of experience is a risk, according to Ivars Ijabs, a political analyst at the University of Latvia. Zatlers was a surgeon before he was called to the presidency by the defunct People’s Party four years ago, when he was allied with politicians such as Lembergs who he now considers oligarchs.
“People who backed Zatlers at the referendum hope that he is kind of a knight on a white horse who will change their lives forever,” Ijabs said. “He won’t -- and that scares me.”
To contact the reporter on this story: Kira Savcenko in London at ksavcenko@bloomberg.net
To contact the editor responsible for this story: Balazs Penz at bpenz@bloomberg.net
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