Latvian court overturns pension cuts, threat to bailout

(RIGA) - Latvia's constitutional court Monday struck down pension cuts that form a key plank of an austerity drive, casting doubt on a crucial IMF and EU-led bailout for the recession-hit Baltic state.

"The decision to cut pensions violated the individual's right to social security and the principle of the rule of law," the court said in its judgment, which cannot be appealed.

It said that while the government could tighten its belt at a time of crisis, agreements signed with international lenders "in and of themselves cannot serve as an argument about the limiting of basic rights" and that lawmakers who approved the rushed-through cuts had "not evaluated carefully the alternatives."

Constitutional court chief Gunars Kutris told reporters that the cuts -- in force since July, and clawing back between 10 and 70 percent of a pension depending on an individual's status -- were illegal and that parliament must by March 2010 have measures in place to refund them.

The money itself must be paid back no later than 2015, the court ruled in the case, which was brought by 9,000 individual pensioners.

Welfare Minister Uldis Augulis had earlier told Latvian television that the government would have to pay back 100 million lats (140 million euros, 201 million dollars) if the court faulted the cuts. The court ruling confirmed that sum.

It was not immediately clear how Latvia's embattled centre-right government would meet the challenge, nor what the impact would be on the international rescue package that has been helping keep the country afloat.

Latvian lawmakers and government officials were due to hold an emergency session Tuesday morning, said Aija Barca, head of the parliamentary social affairs committee.

Latvia is in the middle of one of the steepest recessions in the 27-nation European Union. Its economy is expected to shrink by up to 18 percent this year -- a far cry from the double-digit boom it enjoyed after joining the EU in 2004.

Its fractious coalition government has over the past year been raising taxes and paring public services to the bone as it tries to stick to the terms of a 7.5-billion-euro (10.7-billion-dollar) bailout agreed at the end of 2008 with lenders including the International Monetary Fund and EU.

Under the deal, Latvia pledged to cut 500 million lats (702 million euros, 1.0 billion dollars) each year until 2012.

Latvia, a country of 2.2 million people, broke from the crumbling Soviet Union in 1991. Its overheated economy withered in 2008 as a credit bubble burst and the global crisis struck.