Alternative ratings
- By Qi Kai
0 Comment(s)
Print
E-mail Beijing Review, September 3, 2017
Reasonable response
Although BRICS states may be irritated by the downgrades that may potentially cause market upheaval, they should look at the rating agencies with a cool head.
Admittedly, as well-established organizations, the agencies have developed complete and effective assessment models and approaches. Their professionalism deserves full recognition. It is also debatable whether the agencies deliberately targeted emerging nations by lowering their sovereign credit ratings, as developed nations have also had their ratings lowered. Besides, the plummeting oil prices, domestic instability, international sanctions and shrinking foreign investment all contributed to poor economic performance in Brazil and Russia, thus leading to the downgrades. China, South Africa and India face financial risks of a different nature. A reduction in credit rating more importantly reflects international investors' widespread concerns. Also, the rating calculation is a dynamic process with ups and downs.
Of course, there are problems with the agencies' rating approaches. For example, as they may not have full access to first-hand information on countries they are rating, the agencies may come up with totally different rating results for the same country. During the European debt crisis, the financial condition of some European countries was worse than those of BRICS nations. However, they still obtained positive ratings. It is suspected that such results were reached through double standard. Free elections or the state of "democracy" is also one of the key factors in deciding sovereign credit ratings. This is an evident ideological bias.
No intention to overturn
Believing the current rating agencies are assigning them unfair credit scores, BRICS members have been in discussion to support the establishment of their own rating service. During the 2016 BRICS Summit in Goa, India, they reached a consensus in this regard. They further discussed the possibility of such an independent agency this June when the Second BRICS Finance Ministers and Central Bank Governors Meeting was held in Shanghai.
To further push forward BRICS cooperation and play a greater role in global financial markets, BRICS members should establish a trustworthy rating agency independent of the dominating big three. To this end, they should stick to some basic principles and have a clear objective.
First, the ultimate goal is not to overturn current incumbents, but to offer a better and fairer credit rating service alternative.
Second, the new rating agency, co-founded by BRICS nations, can learn from the mature practices of the big three and develop innovations to surpass them. Over the past decades, the growth rates of BRICS countries have outpaced those of developed nations. Their global GDP share is also on the rise. But it will still take time for them to catch up with developed economies, which are expected to dominate the international financial markets in the long term. Developed nations still spearhead finance and investment theories and innovation as well as manpower resources. It is not realistic or smart to try to bypass the big three, whose accumulated experience exceeds 100 years. Learning, reforming and then innovating is a more feasible and practical path.
Last but not least, the new rating agency should seek a higher and broader vision and focus more on communication and cooperation with various international and regional organizations and non-BRICS nations. After all, the purpose of a new rating agency is not just to support business between BRICS nations, but also to break the current monopoly and offer a trustworthy credit rating service alternative for developing nations as a whole, as well as developed ones.
Go to Forum >>0 Comment(s)