It's Gloomy in the Baltics

Moody's Investors Service placed the bond ratings of Estonia and Lithuania on review for possible downgrade Tuesday, citing severe deterioration in the regional macroeconomic environment. Analysts said a downgrade was likely. The three Baltic Sea-hugging neighbors Latvia, Lithuania and Estonia face an uphill struggle to resuscitate their economies, mired in recession or headed there, rein in their current-account deficits and maintain their currency pegs, MarketWatch reported. Within the emerging-markets universe, Eastern Europe is the region most vulnerable to economic and financial risk. Within the region, the Baltic countries stand out as particularly fragile. Latvia is in such bad shape that it was forced to secure a $2.35 billion loan from the International Monetary Fund in December, though IMF aid is no panacea. The economy contracted by 10.5% year-on-year in the fourth quarter of 2008, significantly worse than analysts had anticipated. Read more.