Former finance minister becomes Latvia's new prime minister

Published: March 16, 2009

Latvia’s president has nominated former finance minister Valdis Dombrovskis as prime minister and asked him to form a new coalition government at the end of February.

Valdis Zatlers said he had chosen Dombrovskis because he had sufficient support in parliament and because of his knowledge of finance and economics.

Dombrovskis, who is a member of the European Parliament, is from the main centre-right opposition party, New Era.

Ivars Godmanis resigned as prime minister the week before amid economic turmoil in the country.

Latvia is likely to see its economy contract by 12% in 2009, according to a forecast by the finance ministry.

Dombrovskis will now put together a coalition government to face the economic crisis. Following his nomination, he told reporters that Lativa was “on the verge of bankruptcy” and would need to cut the budget by at least US$1.26bn or risk financial collapse.

Rating agency Fitch Ratings comments, “the collapse of Latvia’s coalition government could delay the adoption of budget amendments to maintain Latvia’s budget deficit at 5% of GDP, as required by the IMF under a €7.5bn programme agreed in December 2008. Furthermore, Fitch believes that a failure to maintain budget controls could delay the disbursement of international funds to Latvia, and lead to renewed pressures on Latvia’s currency.”

Standard & Poor’s has downgraded its credit rating on Latvia to junk level, putting Latvia below investment grade.