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Cablegate: Latvia: Moody's Revises Latvia's Credit Rating From

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DE RUEHRA #0691 2610610
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R 180610Z SEP 07
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TO RUEHC/SECSTATE WASHDC 4350
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SIPDIS

E.O. 12958: N/A
TAGS: ECON EFIN PGOV LG
SUBJECT: LATVIA: MOODY'S REVISES LATVIA'S CREDIT RATING FROM
POSITIVE TO STABLE

1. (U) International credit rating agency Moody's Investors Service
downgraded Latvia's credit rating outlook to stable from positive on
12 September, citing worsening macroeconomic imbalances in the
country. Moody's warned that Latvia's current account deficit, now
at 27 percent of GDP, is among the highest in the world. The firm
also stressed that property markets are exhibiting bubble-like
characteristics--though housing did begin to decline this summer
after a 70 percent rise in 2006.

2. (U) Moody's, however, does not expect a material deterioration in
the government's underlying creditworthiness because the
government's debt levels are very low and the real income gains over
the past decade have been substantial. Latvia's banking system is
also viewed as resilient to both liquidity and external trade shocks
as banks are primarily owned by large Scandinavian banks, and
lending policies have generally been prudent. Moody's reports that
loan performance to-date has been very good, serious risk
managements practices are in place, and banks are adequately
capitalized.

BAILEY

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