TALLINN - Estonia's prime minister on Wednesday named a new finance minister to help push through tough budget cuts during a harsh economic downturn and to keep the country on track for euro adoption in two years time.
After falling out with former Social Democratic coalition partners, Andrus Ansip leads a minority government. He hopes the small opposition parties will support his budget cuts, but the political uncertainty following the coalition split has made his job more difficult.
The ructions have come just as Estonia faces its biggest post-Soviet recession and worries have grown that the Baltic currency pegs, particularly in Latvia, might not hold. All three countries deny any plans to devalue.
Ansip took a step to getting the budget cuts passed as his Reform Party named parliament finance committee head Jurgen Ligi as new finance minister.
"We hope to make these cuts and we have to make these cuts and we will make them. I think we have support in parliament for this," Ligi told Reuters after meeting the president, who has formally to approve his appointment as finance minister.
Ansip told Reuters he expected the president would approve Ligi as finance minister after a first reading on Wednesday of the amended 2009 budget, which contains 3.4 billion kroons ($310.5 million) of savings, though the government wants more.
Ligi, who was defence minister between 2005 to 2007, has spoken in the past of the need for conservative fiscal policies and urged the government to make deeper spending cuts.
The government has already made savings this year of 10 billion kroons. Among other measures, it is cutting state salaries and payments into the pension system.
Unions have been angry about proposed wage cuts and changes to labour laws and about 1,500 people protested on Wednesday.
Worries about a devaluation in Latvia, which had last year to take a 7.5 billion euro loan, has caused its financial market to squeeze borrowing rates to record highs and knocked shares in Swedish banks and the crown due to worries about Sweden's exposure to the Baltic markets.
Ansip reiterated that Estonia did not face this threat.
"It is absolutely impossible and unreasonable to devalue the Estonian kroon," he told Reuters, noting that this needed three readings in parliament of a bill to change the exchange rate.
Ansip has to make his budget cuts at the head of a centre-right minority coalition with partners Pro Patria/Res Publica after failing to win agreement on inviting an opposition party into the government.
He wants to keep the budget deficit to within the European Union limit of 3 percent of gross domestic product (GDP) and qualify to adopt the euro.
Reporting by David Mardiste, writing by Patrick Lannin
Estonia has alot more work to do before the euro adoption. I'm sure the new finance minister will do his best.
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