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World Crisis Comes to the Baltic
The Fitch agency announced on Friday that it is lowering the country ratings of the Baltic countries. The ratings of Estonia and Lithuania will fall From A to A- and Latvia from BBB+ to BBB. Latvia’s credit rating had also been lowered once in the summer. The countries will continue to have negative prognoses. Thus the threat to Latvia’s economy has spread to its neighbors. That is “the risk that the deterioration in the European economic and financial environment will impose a more costly macroeconomic adjustment in the Baltic countries, given their large bank-financed current account deficits,” according to Edward Parker, head of emerging European sovereigns at Fitch.
Fitch added that the tight link between the local currencies and world currencies will stabilize the situation, but Fitch remains concerned about the possibility of a deep recession in the Baltic countries. When Fitch and Standard & Poor’s lowered Latvia’s rating last summer, they predicted continuing troubles for that country and possibly Estonia as well. The Central Bank of Latvia predicts that the current trade balance deficit and high inflation will continue until next year. Latvia has the highest inflation in the euro zone and the highest inflation in the former USSR, surpassing even Ukraine.
Analysts agree that Latvia’s economy is overheated and that Estonia’s economy may be as well. Most of the banking system in the Baltic countries is controlled by nonresident EU banks, which made an economic downturn inevitable, even in Lithuania, whose country rating rose 12 years in a row. Bankers are remaining clam, however, noting that the countries’ ratings remain relatively high and that the changes in ratings are a consequence of the world financial situation, rather than local problems.
www.kommersant.com
All the Article in Russian as of Oct. 06, 2008
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