Latvian government wins new bailout mandate

(RIGA) - The government of crisis-hit Latvia won a new mandate Thursday for talks with international lenders, but a parliamentary revolt dented the fractious ruling coalition.

In a 54-22 vote, lawmakers approved a bill empowering the centre-right government to continue talks with the International Monetary Fund, European Union and other lenders, who are steering a 7.5-billion-euro (10.6-billion-dollar) bailout to keep the Baltic state afloat.

"I think it was a very significant decision for the country's financial stability," Prime Minister Valdis Dombrovskis told reporters.

But the largest player in his five-party coalition, the People's Party, broke ranks and he had to rely on the opposition to win.

Dombrovskis played down the revolt.

"I'd like to underscore that this is not a vote about the government, but on the international loan programme," he said, adding that he would hold talks with the People's Party.

The People's Party also sought to calm concerns that the rebellion was the death knell of the Dombrovskis government -- which took office in March last year after the People's Party pulled out of a previous coalition.

"We think we must do everything to keep the government stable," said Vineta Muizniece, head of the People's Party parliamentary caucus.

She nonetheless warned that parliament should have more control over taxation and budget issues which are part and parcel of the bailout.

On Wednesday, President Valdis Zatlers had chided the People's Party and Dombrovskis' New Era movement, saying they "must stop punching each other at the expense of state interests."

Under the terms of the rescue package agreed in December 2008, Latvia repeatedly has slashed public spending and raised taxes to try to plug a gaping hole in state coffers.

Lenders have paid out a total of 3.3 billion euros so far. The government is hoping to receive 700 million euros from the EU and 500 million euros from the IMF this year.

Payouts of tranches of the bailout, which runs until 2012, depend on the belt-tightening which has sparked regular coalition infighting.

The government turned to parliament after Latvia's top court ruled last month that it had violated the constitution by cutting pensions to save money, requiring changes to the bailout.

Latvia, which had a double-digit boom after joining the EU in 2004, is now in one of the steepest recessions in the 27-nation bloc. Authorities estimate its economy shrank by up to 18 percent last year.

The country of 2.2 million people broke from the Soviet Union in 1991.