From The Financial Times

By David Oakley

Poland, the Czech Republic and Slovakia are better able to withstand the shocks of the economic and financial crisis than the rest of eastern Europe, Standard & Poor's said yesterday.

S&P's report will please policymakers and central bankers in Poland and the Czech Republic, who have privately complained that their markets have unfairly come under pressure in the past week because they have been associated with weaker economies in the region, such as Hungary and the Baltic states.

The Polish zloty and the Czech koruna fell sharply against the euro and dollar last week, while the cost to insure Polish and Czech bonds against default rose to record levels on Monday.

Slovakia has been less affected by turning sentiment against eastern Europe as its economy is now part of the euro.

S&P said eastern European countries fall into two groups, with Poland, the Czech Republic and Slovakia in one because their economies have been better managed and have stronger public finances.

Bulgaria, Estonia, Latvia, Lithuania, Hungary and Romania have been put in another category because their markets are much more vulnerable to a cut off in capital flows. Many of these economies have large current account deficits and high debt levels.

S&P says it is important to stress the difference between the economies as the risk of further sharp falls in these markets remains high, with many strategists warning the financial crisis could deepen further.

Separately, S&P downgraded Latvia's credit rating to junk, which forced its credit default swaps, or the cost to insure its bonds against default, to the highest levels in four months.

The Latvian economy, which expanded rapidly after entering the European Union in 2004, contracted by 10.5 per cent in fourth quarter, the worst performance of the 27-nation bloc.

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