RIGA (Reuters) - Latvians were voting on Saturday after enduring the sharpest recession in the EU, and their verdict could determine the country's commitment to its IMF-led austerity programme and the goal of euro entry in 2014.
Before the election for the 100-seat parliament, opinion polls suggested the centre-right coalition under Prime Minister Valdis Dombrovskis had a chance of returning to power, probably safeguarding the austerity plan that came with a 7.5 billion euro (6.5 billion pounds) bailout agreed at the end of 2008.
But an opposition party with strong support among the large Russian minority hopes anger over the crisis will secure it the largest share of the vote, including from some disillusioned ethnic Latvians, and a place in government for the first time since the 1991 fall of the Soviet Union.
The Harmony Centre party has said it would seek revisions to the loan deal with the International Monetary Fund (IMF) and the European Union (EU). It also raised the prospect of seeking funds and investment from countries such as China and Russia.
Critics say the party would bring greater Russian influence in Latvia, a European Union and NATO state since 2004. Harmony denies this and says it just wants better business ties.
Some investors believe a coalition without Dombrovskis, regarded as the main guarantor of the bailout programme, would carry the greatest risk of uncertainty.
Voting began at 7 a.m. (5 a.m. BST) and ends at 8 p.m. (6 p.m. BST). By midday, turnout was 25 percent, similar to the almost 24 percent level at the same time during the last election in 2006.
Dombrovskis, who leads the Unity bloc, repeated his hope, based on opinion polls, that he would form a new government.
"We have said clearly that we will not join a government led by Harmony Centre and we have agreed to hold the first (government) talks with the current coalition partners," he added after voting in Ligatne, north east of the capital Riga.
Economic output in Latvia, a country of 2.2 million people, plunged 18 percent in 2009, the biggest drop in the EU.
"I voted for Unity because I want to keep on the current path," said Gints Mednis, 31, who works in IT, though he added he fully expected to lose out due to further tax rises.
CRISIS MANAGER
Beauty salon worker Zoja Ivanova said: "I voted for Harmony Centre as I believe they will take the country out of crisis."
Despite market fears of uncertainty, analysts do not think Latvia will abandon the IMF/EU deal, even without Dombrovskis. They expect any government to realise it needs the international loans to plug holes in the budget.
The coalition is a minority government, but an opinion poll on Monday showed it could return as a majority, with the Unity bloc led by Dombrovskis as the biggest party teaming up again with the Union of Greens and Farmers party and the Everything for Latvia/For Fatherland and Freedom bloc.
The IMF and EU programme aimed to reduce the budget deficit, avoiding a devaluation and paving the way for euro adoption in 2014.
Domestic critics have said the plan puts too much emphasis on austerity and not enough on economic stimulation.
Nordic states, whose banks such as Swedbank and SEB are heavily exposed to the Baltic region, also provided funds for the bailout.
Despite harsh budgets, Dombrovskis has stayed popular and is viewed as a crisis manager solving problems left by others. He has an image as an honest man amid cynicism over corruption.
The economy has started to show signs of recovery, but tough budgets will be needed this year and next.
Harmony Centre has sought to woo ethnic Latvians by painting itself as the main social-democratic alternative. A good showing by the party could persuade Dombrovskis to bring it into the government to strengthen the coalition's majority.
(Editing by David Holmes)
($1=.7322 Euro)
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