Editorial

Rating agencies pushing Sri Lanka under the IMF bus

Summary

The big three CRA’s enjoy a monopoly that prevents competing views. Worse, clear conflicts of interest exist between them and the bond-issuing corporations that own them.

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Moody’s should be rated “ridiculous” for their recent downgrading of Sri Lanka’s economy. Moody’s has ignored a strong majority government guaranteeing stability and which successfully brought COVID-19 to heel and launched our biggest money maker – Port City Colombo.

Moody’s criteria is not just economics, but politics. Why pass judgement before the government has even passed a budget?

A lower rating increases interest rates on Sri Lanka’s bonds and reduces demand for them. The damage to Sri Lanka’s credibility could force the government to the “lender of last resort” – the IMF.

In three successive elections, Sri Lankans voted AGAINST a government whose policy was steered by the IMF’s usual crisis-inducing dictats to stop printing money, raise interest rates, and privatise national assets.

Since the November 2019 presidential elections results, the “big three” credit ratings agencies (CRAs) – Fitch Ratings, Standards and Poor’s (S&P), and Moody’s – have all downgraded Sri Lanka.

They have cried foul at every move the government has made to follow the people’s mandate by lowering indirect taxes, reducing interest rates, and curbing an indulgent import spree.

Who owns these CRAs? What are their conflicts of interest? What is the criteria for their ratings? What gives them the authority to “rate” sovereign states?

The big three CRA’s enjoy a monopoly that prevents competing views. Worse, clear conflicts of interest exist between them and the bond-issuing corporations that own them.

Moody’s shareholders are also linked to Indian state banks and Fitch owner Hearst is linked to Sri Lanka’s Capital Media, owner of business-news outlet EconomyNext.

Many banks and businesses that collapsed during the 1997 and 2008 financial crises were rated highly by CRAs. These entities were then swallowed up by the shareholders of the CRAs

Investors who lost out in 1997 and 2008 said their decisions were guided by CRAs. Sri Lanka too was duped into buying high-rated Greek bonds right before the Greek economy fell into a debt-crisis.

When CRAs were taken to the U.S. Senate hearings for their role in triggering the 2008 financial crisis, they whimpered that their ratings were “just opinions”.

What they didn’t say was that these “opinions” have the power to break nations and keep them chained to financial interests in New York and London.

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