S&P has issued a ranking of the countries that are most vulnerable to adverse conditions in international financial markets. Latvia is in the unfortunate 1st place, followed by Iceland, Bulgaria, Turkey and Romania. Lithuania is substantially further down the list. I would be curious to know how Estonia ranks compared to Latvia but, unfortunately, S&P did not include Estonia in the ranking.
I still think my analysis of why Latvia will avoid the worst case scenarios is right, but Latvia being 1st on a list like this is alarming.
Meanwhile, Latvian finance minister says that they intend to have a surplus of 0.2% GDP in the 2008 state budget. IMF and EU had called for a much larger 4% surplus in 2008.
A country which is doing well at the moment but is vulnerable (like Latvia now) should be having a larger surplus so that it has reserves in case if a financial storm hits it. Unfortunately, Latvian government does not see that. There were rumors of some fairly strong austerity measures a few months ago but, given the new budget announcement, those rumors must have been false.
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