By Patrick Lannin
RIGA (Reuters) - The man nominated as prime minister of Latvia said Thursday he would hold two weeks of talks to form a new government and issued a stark warning over the economic woes his small nation faced.
Latvia last year agreed a 7.5 billion euro (6.7 billion pound) rescue led by the International Monetary Fund and has faced social unrest, including a riot on January 13. Its woes highlighted economic worries in the whole of eastern Europe.
President Valdis Zatlers named Valdis Dombrovskis, 37, a finance minister between 2002 and 2004 and current member of the European Parliament, as candidate for prime minister of the country of 2.3 million, a European Union and NATO member.
Dombrovksis, from centre-right opposition party New Era, said he would hold two weeks of talks to form a government as parties also needed to agree on further tough budget cuts.
He will hold talks with the four parties of the coalition that collapsed Friday. If he finds backing, he then needs to win a vote of confidence in parliament.
"...In reality the state is on the verge of bankruptcy," Dombrovskis told reporters after his nomination.
He said Latvia needed cuts in the budget worth 700 million lats (883 million pound), which would come on top of sharp reduction in spending already agreed to win the bailout, which included lending from the IMF, EU and others.
The Finance Ministry has forecast that the economy will shrink 12 percent this year, much worse than the 5 percent fall forecast when Latvia agreed the bail out.
Ratings agency Standard & Poor's Tuesday downgraded Latvia's debt to junk level, the second EU state after Romania to fall below investment grade.
The depth of the economic crisis has prompted some economists to say Latvia should abandon the fix of its lat currency to the euro. Dombrovskis rejected this.
"I do not support a devaluation of the lat in the current situation," he told reporters.
Zatlers said he nominated Dombrovskis because the four parties in the outgoing coalition as well as another smaller centre-right opposition party had said they would support him.
Zatlers chose Dombrovskis over Edgars Zalans, who was the candidate for prime minister from the People's Party, the largest party in the outgoing coalition.
(Reporting by Patrick Lannin)