Latvia’s fractious coalition government fell on December 7 as Prime Minister Laimdota Straujuma quit. Efforts to form a new administration will now be launched.
Straujuma has suggested several times over recent weeks that she could step down, as she struggled to push through policies, including moves to unbundle the gas market and a deal to save the country’s flag carrier. Infighting has plagued her Unity party, and she claimed on December 4 that there was an organized campaign against her leadership. She insisted then that she had no plan to walk.
However, pointing out the government has now ceased to function, she announced her resignation following a meeting with President Raimonds Vejonis. “I have informed the president of the government’s resignation,” she said, according to LMS.
President Vejonis told reporters he would now talk to all political parties before choosing a candidate to take on the prime minister’s role and form a new government. “Political infighting” has hampered the outgoing administration, he noted.
Straujuma has led the disorderly coalition since taking office in January 2014. Her government has seen Riga take a hawkish stance on Russia, including pushing to free the country’s gas market from the dominance of Gazprom. That fight is now just coming to a head.
She also recently sacked the transport minister for his apparent lack of enthusiasm over a deal to save airBaltic. Having lost the PM’s “confidence”, Anrijs Matiss departed after clearly signaling he disapproved of a deal that will see a 20% stake in the airline handed to a German businessman reported to have close links to Russia. The Latvian press has since been rife with reports of conspiracies spiraling out of Moscow in connection with the last surviving flag carrier in the Baltic region.
The drafting of the 2016 budget was another long drawn-out tussle that hit the PM’s standing, while the refugee crisis is spreading discord throughout Europe. “We need to bear external politics in mind – security threats in Europe, the refugee crisis and so on – and that’s why we need a government that works,” Vejonis said.
The pressure has only antagonized the slump into which the centre-right Unity has fallen. A lack of support amongst voters and its weak position leading a disparate coalition has promoted infighting. Suggestions that new parties could be brought into the ruling coalition to refresh it had already been doing the rounds. “I see that new ideas are needed, new contributions and energy that can continue to build further on these foundations,” Straujuma told the press as she resigned, according to AFP.
“Guess that will be the agenda now,” wrote Tim Ash of Nomura International.
Interior Minister Rihards Kolovskis is being heralded as the most likely successor, AFP notes. Other names mentioned include Unity’s chairwoman Solvita Aboltina, Foreign Minister Edgars Rinkevics, Unity MEP Artis Pabriks and MEP Roberts Zile of the right-wing National Alliance.
“Our base-case is that that the current coalition will continue under a new prime minister. This may be Aboltina herself, or Rihards Kozlovskis, the current Minister of the Interior, who is Straujuma’s favoured candidate. However, ZZS could make a play for the premiership,” says Otilia Dhand, senior vice president of Teneo Intelligence.
While the fight is on in Latvian politics, it’s unlikely to have much impact on investors, according to Ash. “Latvia has solid macro underpinnings so don’t expect huge market impact,” the analyst wrote. “Many people will see this as providing an opportunity to buy assets cheaply, which are otherwise hard to locate – at least on the eurobond front.”