By Gareth Jones
WARSAW, Feb 4 (Reuters) - Ex-communist eastern Europe's
currencies crumbled, Romania cut interest rates and a ratings
agency warned of risks facing Hungary on Wednesday as the impact
of global recession intensified across the once-booming region.
Poland, the European Union's largest former communist
member, ruled out interventions in the foreign exchange market
to rescue the plunging zloty for fear of squandering precious
hard currency reserves at a time of economic crisis.
Further south, Bulgarian farmers blocked a Danube border
crossing with Romania in a rally mimicking similar protests in
Greece for more subsidies and against cheap farm imports.
Foreign investors fleeing a region now perceived as too
risky drove the zloty down to 4.67 to the euro, its lowest level
since June 2004, just after Poland joined the EU. Hungary's
forint hit a record low of 304 per euro.
Investors fear that manufacturing falls across the region,
heavily dependent on exports to a euro zone now deep in
recession, will hammer tax revenues, forcing spending cuts that
will further squeeze demand in a vicious downward spiral.
Ratings agency Moody's said the gloomy outlook posed a risk
to Hungary, which late last year clinched emergency loans from
the International Monetary Fund and EU aid to avoid meltdown.
"The negative outlook on Hungary and every other country
indicates that the likely direction in the medium term is
towards lower rating," Dietmar Hornung, senior analyst at
Moody's Investors Service in Frankfurt, told Reuters.
Moody's is content for now with Budapest's rating, he added.
Heavily indebted Hungary is expected to see its economy
shrink by up to 3 percent in 2009.
Plunging currencies compound the woes of Polish, Hungarian,
Czech and other consumers saddled with loans denominated in
euros or Swiss francs, which in turn raises the risks to the
region's mostly foreign-owned banks.
NO INTERVENTIONS
In Poland, still among the region's stronger economies,
central bank head Slawomir Skrzypek and Economy Minister
Waldemar Pawlak both said they saw no reason for market
interventions to underpin the zloty.
"There is a question whether those interventions would be
successful," Skrzypek said, adding the government was also right
to keep a tight rein on spending to maintain market confidence.
Poland's centre-right government unveiled plans on Tuesday
to find savings worth 19.7 billion zlotys in the state budget.
Defence Minister Bogdan Klich said on Wednesday Poland would
withdraw its troops from peacekeeping missions in Chad and the
Middle East in a decision expected to save 2 billion zlotys.
Polish economic growth is expected to slow this year to
below 2 percent from 4.8 percent in 2008.
Slovakia's growth will drop sharply to 2.4 percent this
year, below a previous forecast of 4.6 percent, cutting state
revenues and boosting the fiscal deficit, Finance Minister Jan
Pociatek said.
In Romania, the central bank cut interest rates by a quarter
point to 10 percent, easing the cost of money for the first time
in 19 months as cash shortages squeeze its economy.
Economists say Romania, which joined the EU with southern
neighbour Bulgaria in 2007, faces possible recession or even a
financing crisis if the new government fails to convince markets
it is serious about shoring up the state budget.
The Czech Republic, facing the possibility of zero growth
this year, is also expected to cut rates on Thursday, following
the example of Poland and Hungary last month. But cutting
borrowing costs also piles further pressure on currencies.
The worsening economic situation has recently stirred
protests in Greece, Bulgaria, Latvia, Lithuania, Iceland and
Russia. On Wednesday, Bulgarian farmers shut down the Danube
bridge link with Romania to protest against falling farm prices.
Russia has been especially hard hit by the flight of foreign
capital from global emerging markets. On Wednesday, the Fitch
ratings agency downgraded Russia's sovereign debt.
(Reporting by regional bureaux, writing by Gareth Jones,
editing by Patrick Graham; Warsaw newsroom, +48 22 653 9706))
