Does the domino begin here? Poor Standards Standard & Poors junks Latvia (our emphasis):
Feb 24 – Standard & Poor’s Ratings Services today said it had lowered its sovereign credit ratings on the Republic of Latvia to ‘BB+/B’ from ‘BBB-/A-3′ and removed the ratings from CreditWatch negative, where they were placed on Nov. 10, 2008.
The outlook is negative. Standard & Poor’s also placed its ‘A/A-1′ sovereign credit ratings on the Republic of Estonia, and its ‘BBB+/A-2′ ratings on the Republic of Lithuania, on CreditWatch with negative implications. In related actions, the ‘BBB-/A-3′ issuer credit ratings on City of Riga were lowered to ‘BB+/B’ from ‘BBB-/A-3′. The outlook is negative. In addition, the ‘BBB+’ long-term ratings on City of Vilnius were placed on CreditWatch with negative implications.
“The downgrade of Latvia reflects what we consider is a worsening external outlook and the associated implementation risks on the government’s ambitious economic program,” Standard & Poor’s credit analyst Eileen Zhang said. “We believe the necessary process of private sector deleveraging is likely to continue over several years, during which time real incomes will decline, testing Latvia’s commitment to both its exchange rate regime and its obligations under the EUR7.5 billion assistance program from the IMF, EU, and other official lenders. The adjustment is made more difficult as external demand for Latvia’s key exports continues to decline.”
Latvia is, of course, one of the CEE countries already locked into the ERM 2 mechanism.
Related links:
Domino theory, eastern European edition – FT Alphaville
UBS: No eastern European meltdown - FT Alphaville