Latvian health minister quits over big budget cuts

Jun 17, 2009, 9:54 GMT

Riga - Latvian Health Minister Ivars Eglitis unexpectedly resigned Wednesday, just hours after the national parliament approved a hard-hitting set of austerity measures.

Prime Minister Valdis Dombrovskis immediately accepted the resignation of Eglitis, saying he had chosen 'the easiest way out' of a tough situation.

'If the minister admits that he is not able to lead these reforms, his resignation is understandable and acceptable,' Dombrovskis said.

In his resignation letter, Eglitis said cuts of 89 million lats (176 million dollars) for healthcare hit the most vulnerable members of society too hard.

'As a doctor and health care management specialist I cannot accept that,' Eglitis said.

The resignation raises fears that the coalition government of Prime Minister Valdis Dombrovskis may come under increasing pressure as budget cuts of 500 million euros (1 billion dollars) start to bite.

Eglitis represents the People's Party, which despite being the largest party in parliament was all but wiped out during recent European and municipal elections.

The People's Party is in an uneasy coalition with Dombrovskis' New Era party and three other parties.

On Tuesday night the Latvian parliament approved budget cuts totalling 500 million lats (1 billion dollars) in order to trigger payments totaling around 1.4 billion euros from the International Monetary Fund (IMF), the European Union and governments including Sweden, which has a big stake in the Latvian economy.

The sum is equivalent to around 10 per cent of the total government budget and comes on top of previous attempts to trim spending as Latvia wrestles with the EU's deepest recession.

From July 1, pensions will be cut by 10 per cent, child benefit payments will be reduced and public sector wages will be slashed by 20 per cent for the second time in less than a year.

The measures are proving unpopular with ordinary Latvians, but government speakers said the only alternative was to run out of money, followed by even harsher measures.

The cuts will not end with Tuesday's vote, as similar-sized economies will be needed in both 2010 and 2011 for Latvia to continue receiving international support.

After a decade of breakneck growth, Latvia plunged into recession in 2008 and the country's second-largest bank, Parex, was nationalised.

The economy is expected officially to contract by 18 per cent in 2009, though most economists agree even this figure is likely to be optimistic. Unemployment has reached 17 per cent and is still rising.

The government of Ivars Godmanis agreed a 7.5-billion-euro (10.6- billion-dollar) economic aid package brokered by the IMF in December 2008.

His government collapsed in March after a first round of spending cuts started to bite and Riga witnessed its worst riots since Latvia regained its independence from the Soviet Union in 1991.

Under the terms of the agreement Latvia must limit its budget deficit and introduce a range of structural reforms.

Latvia has already missed out on a 200-million-euro payment after the IMF judged that reforms were not moving fast enough.

That could lead to the devaluation of the national currency, the lat, which has been under pressure in recent weeks.

Policymakers in Europe fear a lat devaluation could trigger a wave of devaluations across Eastern Europe that would threaten western banks.

The European Commission welcomed the budget cuts Tuesday as 'a courageous and ambitious step forward to address fiscal imbalances.'