LONDON, Feb 5 (Reuters) - Ratings agency Fitch expects more
downgrades in emerging Europe after cutting Russia's rating this
week, it said on Thursday, warning political risk was a mounting
threat to creditworthiness in the region.
Head of emerging European sovereigns Edward Parker said that
with nine countries in the region on negative outlook and the
financial crisis deepening, creditworthiness in a string of
countries was deteriorating.
"I would expect that we would see more negative ratings
actions," he told Reuters in a telephone interview.
Parker said deepening economic pain and rising unemployment
across the region heightened the risk of political instability
and governments failing to take austerity measures out of fear
of rising unrest.
"Clearly, there is going to be a rise in political risk," he
said. "Obviously, political shocks by their nature are often
unpredictable but as well as that we would be particularly
concerned over the risk of governments failing to pursue prudent
and responsible policies."
He would not say which country would likely be next to
follow Russia, which on Wednesday suffered its first rating cut
from Fitch in a decade on slumping reserves, corporate and
banking problems and economic contraction.
But he said Fitch was watching the upcoming review of
Ukraine's International Monetary Fund deal particularly
carefully.
Fitch has said previously that any failure of that deal
would lead to a further negative move on Ukraine, which has
suffered a currency slump and deep recession as its steel
industry and banking sector suffered from the global financial
crisis.
In contrast, he said that Turkey might be able to survive
without an IMF deal with its current rating intact. Turkey has
held back from concluding an IMF deal ahead of local elections.
"We would see an IMF deal as a positive development for
Turkey," he said. "But if one was not agreed they might be able
to find other financing and it would not alone be enough for
negative ratings action."
Parker said Fitch was continuing to watch Russia closely in
the aftermath of its downgrade, with ongoing low oil prices, any
further loss of reserves, worsening of corporate balance sheets
or difficulty refinancing debt or rising political risk
potentially prompting further action.
Both Russia and Kazakhstan have allowed their currencies to
depreciate after spending considerable reserves defending them.
Parker said those devaluations had been necessary to take into
account the drastic fall in oil prices.
With the Baltic states also entering deep recessions, some
analysts believe their currencies -- either pegged or trading in
narrow bands -- might also be forced to devalue.
Parker said this would potentially be negative for their
ratings.
"It would make it more difficult for companies and others to
repay foreign currency debt and it would undermine balance
sheets," he said.
Currency falls in Central and Eastern Europe were already
having a similar effect, he said, with the high proportion of
foreign currency loans in Hungary making it more vulnerable than
other regional economies such as Poland and the Czech Republic.
(Editing by Toby Chopra)
