Fitch cuts Latvia view to negative

Fitch Ratings said it changed Latvia's foreign- and local-currency issuer default rating outlooks to negative from stable. Its foreign- and local-currency issuer default ratings are affirmed at A- and A respectively.

The outlook change reflects the increased risk of an abrupt adjustment in capital and financial flows or a prolonged, painful slowdown in economic growth, the agency said. While the Latvian government's new anti-inflation plan is an encouraging initial policy response to the country's growing macroeconomic imbalances, Fitch said, the plan may not be sufficient to restore the economy to a sustainable path.

Fitch noted that Latvia's low level of public debt (just 11% at the end of 2006) with repayment peaks of just €200 million and €400 million in 2008 and 2014, respectively, partially mitigate the downward pressure that an abrupt slowdown in capital and financial flows could put on the ratings.

Fitch said it believes that a smooth macroeconomic adjustment is still possible for the Latvian economy, but the likelihood of this is now lower.

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