Crisis-hit Latvian government faces tough test

By Patrick Lannin

RIGA (Reuters) - Latvian municipal and European Parliament elections on Saturday were a first test for government parties faced by an economic crisis that has hit the currency and could also hurt other eastern European nations.

Several of the five government parties are set to take a battering in the vote, where all eyes are on capital city Riga, the powerhouse of the nation of 2.3 million people which faces a brutal economic contraction of up to 20 percent this year.

Some pollsters have said the votes could affect the stability of the ruling coalition, but the prime minister played down chances of a political shakeup to add to economic woes.

Such problems have led markets to conclude Latvia will have to abandon the tight link of its lat currency to the euro, causing falls in other currencies in eastern Europe and Sweden.

The government and central bank have strongly denied any devaluation plan is part of an IMF-led 7.5 billion euro ($10.63 billion) bailout agreed last year.

The influential Diena newspaper said in an editorial the elections were of key importance.

"Its result could influence the fragile stability which the government is trying to retain and which is extremely vital to Latvia to stop the downward slide and start recovery," it said.

Voting began at 5 a.m. British time (0400 GMT) and ended at 8 p.m. British time (1900 GMT).