Latvian Prime Minister marks turbulent first year in office

Mar 11, 2010, 15:36 GMT

Riga - Latvian Prime Minister Valdis Dombrovskis said Thursday he was pleased with progress made to restore the Baltic state's financial footing but warned of possible political instability in the run-up to an October general election.

Asked if he would still be in power at the time of the election, Dombrovskis said the probability was 'certainly more than 50 per cent' and that the public understood his programme of austerity measures was necessary to stabilize the Latvian economy.

Speaking on the eve of his first anniversary in office, he said increasing support for the government's work is reflected in opinion polls.

'The message is getting through, though it would help if there was less political fighting and more constructive work within the coalition,' he told the German Press Agency dpa.

Dombrovskis was installed as prime minister on March 12, 2009, after the collapse of the government of Ivars Godmanis.

One of Dombrovskis' first acts was to say Latvia was on the verge of bankruptcy, after which he managed to rescue a faltering 7.5- billion-euro (10-billion-dollar) loan package involving money from the European Union, International Monetary Fund, World Bank and regional governments.

Thursday saw the transfer of the latest 500-million-euro payment from the European Commission's contribution to the loan package.

In the intervening 12 months, Dombrovskis has successfully negotiated several crucial parliamentary votes to keep Latvia's assistance package on track. These moments represented both the best and worst moments of his premiership so far, he said, as they involved making huge cuts to public spending.

'The main problem is not political instability but not to allow pre-election fighting to translate into some kind of macroeconomic or financial instability. This would be the worst thing that could happen,' he said.

Dombrovskis spoke on the same day that official data confirmed that the Latvian economy contracted by 18 per cent during 2009, representing the largest recession in the European Union.

Despite some recent signs of recovery, such as an improving current account balance, the Latvian economy still faces severe challenges.

Unemployment, which currently stands at around 23 per cent, according to Eurostat figures, would remain the 'biggest social problem' at least until the end of 2010, Dombrovskis said. He insisted that Latvia remained on track to join the eurozone in 2014.