Latvian Minister Quits Over Cuts, Govt Eyes Loans

Prime Minister Valdis Dombrovskis has said the loans will prevent Latvia going bankrupt and being unable to pay wages and other bills.

Latvia's health minister resigned on Wednesday after refusing to implement spending cuts needed to secure loans from the International Monetary Fund and European Union to stave off state bankruptcy.

The government hopes its plan to cut the budget by 500 million lats ($992 million) will secure a decision next week on releasing a 1.2 billion euros ($1.67 billion) tranche of a 7.5 billion euros IMF-led rescue package for an economy that has slumped by 20 percent this year.

On the streets of the capital there was little reaction to the austerity measures, although teachers, who say they face wage cuts of 40 or 50 percent, were unhappy.

Prime Minister Valdis Dombrovskis has said the loans will prevent Latvia going bankrupt and being unable to pay wages and other bills -- a worse prospect than spending cuts.

The measures, including a 10-percent cut in pensions and 20 percent in state salaries including teachers, policemen and the fire service, have caused anger among unions and put political pressure on the five-party coalition government.

The teachers' union demanded on Wednesday that the education minister resign and join Health Minister Ivars Eglitis.

"As a doctor and a healthcare specialist I cannot accept this," Eglitis said in a statement, explaining he had resigned because he refused to implement the health cuts that could lead to hospital closures and put hundreds out of jobs.

Dombrovskis accepted the resignation.

"...The government is stable and I think that in the current situation it is very important to ensure political stability," Baltic news agency BNS quoted him as saying.

Eglitis's party, the People's Party and largest in the coalition, will meet to decide on a replacement. Dombrovskis is from the third-largest party, New Era.

BNS said a meeting of the teachers' union had voted to demand the resignation of Education Minister Tatyana Koke.

Unions plan to demonstrate against the cuts on June 18, but so far Latvians have not protested and the ruling coalition has held together to push them through.

Teachers say they are among the worst affected by the cuts, with their salaries going down by twice the general proportion of 20 percent in the public sector.

"I will earn just 160 lats ($317.3) a month and my mortgage alone costs me more than 100 lats a month," teacher Daiga Zirmite, 47, told Reuters.

"I teach in three different schools seven days a week, including summer school. It's crazy. I simply can't work any more. How will I survive?"

VITAL LOANS

Dombrovskis said earlier a final decision on further loans from the European Union and International Monetary Fund could be taken around June 25 or June 26. He will discuss the loans at an EU summit on Thursday and Friday.

Financial markets in eastern Europe and Sweden were rattled in the past two weeks by fears that Latvia's crisis would lead to a devaluation of its currency which is pegged to the euro.

These fears have eased as the government has made progress in its budget cuts. Swedish banks are vulnerable as they have high exposure to the difficulties in Latvia and the other recession-hit Baltic states after aggressive expansion.

Views in the financial community remained mixed: some economists were sure the extent of the downturn meant Latvia would anyway eventually have to end its currency peg to the euro, while others saw enough political commitment and popular acceptance of the budget measures to avoid a devaluation.

In a commentary, London-based bank HSBC said there was a consensus in support of the country, although in the longer term it would be sensible for it to devalue.

"This is less about Latvia and mostly about the still fragile state of global sentiment," it said.

"The lessons learned from Lehman and Iceland are that it is best not to let dominoes fall -- you can't be sure what they end up knocking over," it added.