RIGA, Latvia - March 17, 2010 - The People's Party, the largest group in a five-party coalition, walked out amid disputes over how to cope with the country's severe problems.

Unemployment has now hit 20% and the economy contracted by 18% last year.

The People's Party quit after its action plan failed to get the backing of Valdis Dombrovskis, the Latvian prime minister, who labelled it "populist".

Dombrovskis warned the People's Party's departure could cause yet further economic instability.

"Any contradictions in the government are immediately reflected in the financial markets, and they directly affect the fiscal stability of our country... a policy that is truly responsible for the country cannot be self-centered," he said.

But he remained confident that an emergency IMF bailout worth £6.7bn would remain unaffected by the political instability.

New Era, Mr. Dombrovskis's political party, confirmed it had already extended invitations to other parties to join a new coalition in an attempt to gain the majority in Latvia's 100-seat parliament.