On Dec. 22, 2006, Standard&Poor's Ratings Services lowered its foreign currency sovereign credit ratings on the Republic of Iceland to 'A+' long-term and 'A-1' short-term, from 'AA-' and 'A-1+', respectively. At the same time, the long-term local currency rating on Iceland was lowered to 'AA' from 'AA+', and the short-term local currency rating was affirmed at 'A-1+'. The outlook is stable. The downgrade reflects the loosening of fiscal policy by the Icelandic government ahead of the 2007 election, demonstrated by the recent expansionary amendments to the 2007 budget at a time when the macroeconomic imbalances in the economy due to excessive domestic demand are in urgent need of readjustment. This expansionary stance reveals an increasingly unbalanced policy mix,
