RIGA - Latvia won’t postpone its first international bond sale since 2008 because of a referendum to dissolve parliament, Prime Minister Valdis Dombrovskis said last week, reports Bloomberg. Market reaction hasn’t been “too negative” since May 28, when President Valdis Zatlers called for the public vote, Dombrovskis said in an interview on May 31 in Riga. The government and the central bank “will start investor meetings this week to sell dollar bonds,” he said.
“We aren’t changing our plans,” Dombrovskis said. “Of course, the president’s decision is going to cost us money. So far it seems like this will not be too costly.”
Zatlers urged Latvians to dissolve the parliament elected in October after lawmakers failed to lift the immunity of a deputy targeted by an anti-corruption probe. Dombrovskis said he supports the call for new elections.
The yield on Latvia’s 2018 dollar bonds sold in 2008, the country’s last international offering, rose 5 basis points on May 31 to 4.97 percent, compared with almost 12 percent in March 2009.
Latvia’s five-year credit default swaps, which investors use to protect against default or speculate on a borrower’s creditworthiness, fell 4 basis points to 195.375 (1.95375 percent), according to data provider CMA. Latvian CDS prices reached almost 1,200 basis points in March 2009.
The country plans to raise as much as 1.5 billion euros through international bond offerings this year as it builds up financing to begin repaying the 4.4 billion euros it used from a bailout led by the International Monetary Fund and the European Union. Latvia expects to complete the loan program this year.
The referendum won’t have an immediate impact on Latvia’s BB+ credit rating, one step below investment grade which has a positive outlook, Standard & Poor’s said last week. Fitch Ratings assign their lowest investment grades to the country’s debt. Moody’s raised its rating outlook from stable to positive on June 6.
The referendum, which doesn’t require a minimum turnout to be binding, is scheduled for July 23 and may pave the way for new parliamentary elections two months later if approved by voters.
Lawmakers’ failure to lift the immunity of a deputy, MP Ainars Slesers, shows that parliament feels comfortable in an “atmosphere of political schemes, lies and impunity,” Zatlers said when he called for the referendum.
“I think it came as a surprise to everyone,” Dombrovskis said. “We had a meeting that was the very same day. The president didn’t clearly tell us about his intentions.”
Dombrovskis has been prime minister since March 2009, rising to the post when the previous government collapsed four months after it had sought its 7.5 billion-euro bailout loan package forced upon it when the country’s former flagship bank, Parex Bank, collapsed.
Latvia, which has implemented tax increases and spending cuts equal to about 16 percent of gross domestic product since the crisis began, plans further measures to narrow the budget deficit to 2.5 percent next year and adopt the euro in 2014.
The measures may harm Dombrovskis’ Unity bloc in an early election. The party won 33 seats in the 100-member legislature in October. “Since the election, we have had to continue Latvia’s economic stabilization program, which people know isn’t going to be popular,” he said. Still, “we think that the president took an important decision to substantially reduce the role or oligarchs in politics.”