By Jorgen Johansson and Patrick Lannin
RIGA, Feb 25 (Reuters) - Down a cobbled sidestreet of Riga, Aldis Tilens struggles like many businessmen across the ex-Soviet Baltic to make a living, selling souvenirs, hand-knitted sweaters, drawings and T-shirts to tourists.
"This is the worst year of the 15 years I've been doing business in Latvia," Tilens, 44, told Reuters.
The euphoria that enveloped Latvia, like neighbouring Lithuania and Estonia, after EU accession has quickly evaporated since global economic crisis swept across its frontiers. Latvia accepted a 7.5 billion euro ($9.56 billion) rescue loan last year and its government collapsed on Friday.
"It's something like it was 10 years ago when it was also hard to access money and get loans," he added.
Though a small businessman, his words are sympomatic of entrepreneurs throughout the Baltic region as they look to governments for help.
Financial markets have also shown nerves. Ratings agency Standard & Poor's cut its rating on Latvian debt on Tuesday to junk status for the first time. This helped pressure the Latvian currency, the lat, which fell on Wednesday.
Dealing with the economic crisis is one of the main tasks facing the new government of Latvia, where the economy boomed after it joined the European Union in 2004.
President Valdis Zatlers is due on Thursday to name his candidate as prime minister, choosing between former finance minister Valdis Dombrovskis of the centre-right opposition party New Era and Edgars Zalans, a minister in the outgoing coalition.
Betting website triobet.com had Dombrovskis, 37, currently a member of the European Parliament and a former chief economist at the central bank, as favourite to be nominated.
He would then have to negotiate with the four outgoing ruling parties on forming a coalition that will almost immediately have to decide on further painful cuts as part of a programme agreed with the International Monetary Fund (IMF).
PENSIONS
Economists have said it is important for the new government closely to follow the IMF programme, which was part of the agreement to win the bailout.
However, Dombrovskis has said he is against cutting pensions, which the Fund has said is necessary.
Public confidence in politicians is at an all-time low after the crisis and after years of allegations of corruption and nepotism against the ruling elite.
Though Latvia has had a dozen different prime ministers since it quit the former Soviet Union in 1991, the same parties have often stayed in coalition.
"It's just the same people rotating in politics for a couple of years then they return to the private sector to make some money," said Kurts Sveilis, an independent marketing specialist.
"Latvia needs an inspired leader who will encourage people and small businesses and get things going again," Tilens said.
Businesses have demanded that the government give some of the loan funds to promote industry and expressed anger at the economic mess the country is in.
Gross domestic product is expected to contract by 12 percent in 2009 after several years of double digit growth.