* Country needed bailout, austerity package
* Main Russian minority party expected to win most votes
* Centre-right PM still has chance of forming new government
By Patrick Lannin and Aija Braslina
RIGA, Sept 30 (Reuters) - Latvia holds its first election on Saturday after a severe economic crisis and the vote could determine whether the Baltic state sticks firmly to its IMF-led programme of austerity measures and eventual euro entry in 2014.
Opinion polls before the election for the 100-seat parliament have shown the ruling centre-right coalition has a chance to return to power, most probably safeguarding the austerity programme that came with an 7.5 billion euro bailout agreed at the end of 2008.
But uncertainty remains due to an expected strong showing by a Russian-speaking opposition minority party, which hopes anger over the crisis will win it most votes and a possible place in government for the first time since the 1991 fall of the Soviet Union. [ID:LDE68T0F6]
This could lead to it and other Latvian parties, who in their pre-election rhetoric have criticised the IMF deal, including calling it “financial occupation”, forming a coalition without the current prime minister.
“Opinion polls show ... there will be a lot of ways to create the government. Most likely the elections will bring some surprises as well,” said Arnis Kaktins, director of polling and research company SKDS.
“It looks now that there are good chances for the existing coalition to stay,” he added, referring to the coalition led by Prime Minister Valdis Dombrovskis and two other parties.
But Swedish bank SEB saw the vote “clouded with uncertainty”. It did not see any policy U-turn in Latvia from the IMF and EU rescue, but added in a research note:
“...we recognise that increasing political risk may again feed into financial markets in the short term.”
The coalition is currently a minority government, but polls show it could return as a majority, with the Unity bloc led by Dombrovskis being the biggest party.
Dombrovskis has said his first priority in this case would be to re-form the current government [ID:LDE68S13P]
Latvia, a country of 2.2 million people which entered the European Union and NATO in 2004, saw its economic output plunge 18 percent in 2009. <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
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The programme agreed with the International Monetary Fund and the European Union aimed at reducing the budget deficit, avoiding a devaluation and eventually entering the euro zone.
Dombrovskis remained relatively popular as a crisis manager who cleaned up the mess made by other governments. He also has a reputation for honesty amid popular cynicism over corruption.
The economy has started to show some signs of recovery, but further tough budget bills will be needed this year and next.
The Russian minority Harmony Centre party has consistently led opinion polls and could win most parliament seats, but not a majority. It has sought to woo ethnic Latvians by painting itself as the main social-democratic alternative.
A good showing by Harmony Centre could persuade Dombrovskis to include that party in government, giving the coalition a stronger majority. This might lead to clashes with a nationalist bloc which is the more natural ally of Dombrovskis.
But Dombrovskis could also be denied becoming prime minister if Harmony Centre and other key Latvian parties strike a deal.
One important player is the Union of Greens and Farmers, the second-largest party in the current ruling coalition and running third in the polls.
It is led by Aivars Lembergs, the powerful mayor of port city Ventspils. He has been indicted for corruption and money laundering, but denies the charges and remains the party’s official prime minister candidate. He has had clashes in the past with some key members of the Unity bloc.
The For a Good Latvia group, led by two well-known businessmen-politicians, is also likely to win seats and could upset Dombrovskis’s hopes. (Editing by Charles Dick)