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Lithuania Opposition to Vie for Dominance in Election Runoff

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Oct. 26 (Bloomberg) -- Lithuanian opposition parties will jostle in a second round of elections to lead a new ruling coalition that’s set to replace Prime Minister Andrius Kubilius’s austerity-focused government.

The Labor Party, which won 18 of parliament’s 141 seats in first-round voting, will compete for 35 more in Oct. 28 runoffs. The Social Democrats, which have 16 seats, will run in 28, while Order & Justice has 6 seats and will challenge for 7 more. The three parties plan to form a coalition.

The opposition lured voters with spending pledges after austerity devised by Kubilius’s Homeland Union-Christan Democrats, which finished third with 13 seats in Oct. 14’s first round, intensified the Baltic nation’s deepest recession in 2009 and 2010. While support for the three potential coalition partners should propel them into power, Labor may struggle to retain its lead, according to Oxford University’s Ainius Lasas.

The Social Democrats “are the most likely to head the government,” Lasas, a senior research fellow focusing on media and democracy in central and eastern Europe, said Oct. 24 by phone. Their positions are “quite strong” and they will probably end up with more seats, he said.

Bonds, Swaps

The yield on Lithuania’s dollar bond due 2022 was 3.578 late today in the capital, Vilnius, near the lowest since its January debut. The cost of insuring state debt against non-payment for five years using credit-default swaps was 144 basis points, compared with 845 points in February 2009, data compiled by Bloomberg showed.

The first round allocated 70 seats through party lists and decided three single-mandate contests in which candidates won more than 50 percent of votes. The runoffs will determine the winners in 67 single-mandate districts, after which a Cabinet can be formed.

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

‘Artificial Provocations’

Police are now investigating 22 cases of foul play during this year’s election, the police department said today on its website, without identifying the parties involved. Nine cases involved Labor, four Order & Justice, two Homeland Union and one the Social Democrats, the Baltic News Service reported Oct. 24, without saying where it got the information.

The accusations have hurt voter support for Labor, according to party head Viktor Uspaskich, who called them “artificial provocations” by rivals. Other parties haven’t commented publicly about investigations of their members.

“It’s not so important to be in first or second place,” he said Oct. 24 by phone. “In any case we’ll have to work in a coalition government, so I don’t see much difference.”

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.

Wages, Taxes

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.

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.

Russian-born entrepreneur Uspaskich’s Labor Party, former Finance Minister Algirdas Butkevicius’s Social Democrats and impeached ex-President Rolandas Paksas’s Order & Justice are negotiating the formation of a new coalition to “improve living conditions for the people of Lithuania as quickly as possible,” the parties said in a joint statement Oct. 16.

Spending Promises

The Labor Party says it will raise the minimum wage to 1,509 litai ($567) a month from 850 litai and reduce the value-added tax on basic food stuffs. The Social Democrats, who have advocated euro adoption a year later than Kubilius’s 2014 goal, have pledged to create jobs and adjust income-tax rates to benefit those who earn least.

President Dalia Grybauskaite, a former EU Budget Commissioner who must name Lithuania’s new premier after the elections, has criticized spending pledges by some parties. The Social Democrats’ Butkevicius has said “there will be no revolutions in the budget.”

While Kubilius’s Homeland Union may improve on its first-round showing and could end up with more votes than any other party, it won’t be able to form a coalition because its natural partners lack sufficient support, according to Tomas Janeliunas, who lectures at Vilnius University’s Institute of International Affairs and Political Science.

With the voter-fraud scandal damaging Labor’s runoff prospects, that puts the Social Democrats in pole position, he said Oct. 24 by phone.

There will probably be “some shifting of weight” within the planned coalition, Janeliunas said. “It seems logical the Social Democrats will take the role of the leader and most likely hold the premiership.”

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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