Rat­ing agen­cies fol­low­ing a nar­row po­lit­i­cal agenda

The Star Early Edition - - OPINION & ANALYSIS - WES­LEY SEALE

RAT­ING agen­cies have be­come a re­al­ity for sov­er­eign na­tions and their cit­i­zenry. Yet what re­course do coun­tries have when a rat­ing agency wil­fully sub­verts the de­ci­sion-mak­ing pro­cesses as it suits a spe­cific fi­nan­cial and po­lit­i­cal agenda.

Moody’s down­grad­ing of China and then Hong Kong is a case in point.

China is a global fi­nan­cial pow­er­house with aims to es­tab­lish al­ter­na­tives to the World Bank and In­ter­na­tional Mon­e­tary Fund (IMF). For a while these two Bret­ton-Woods In­sti­tu­tions have been crit­i­cised for be­ing too Western.

At the same time, China also has its own rat­ing agency.

China’s sovereignty is once again be­ing chal­lenged and ques­tioned by Moody’s, a Western agency, whose clear in­ten­tion and ob­jec­tive is as shame­ful as it is ques­tion­able.

The same rat­ing agency sub­se­quently down­graded Hong Kong’s sov­er­eign credit rat­ing, cit­ing its ties with China. The Hong Kong rat­ing was meant, no doubt, to cre­ate ten­sion be­tween Hong Kong and the rest of China.

At the same time, it is im­por­tant to re­mem­ber that China “owns” a fair chunk of US debt. As of Septem­ber 2014, for­eign­ers owned over $6 tril­lion (R77.4 tril­lion), ap­prox­i­mately 47%, of pub­lic debt.

US debt to China stood at more than $1.2 tril­lion as of April last year. In other words, 30% of the US’s $4 tril­lion in Trea­sury bills, notes, and bonds held by for­eign coun­tries, was held by China alone. The rest of the $19 tril­lion debt is owned ei­ther by the Amer­i­can peo­ple, or the US gov­ern­ment.

So, why would Moody’s down­grade a coun­try and re­gion if it clearly has more cap­i­tal than the US?

China is part of the Brics (Brazil, Russia, In­dia, China and South Africa) bloc that con­tin­ues to grow and which is a threat to Western fi­nan­cial be­he­moths, but a boon to the de­vel­op­ing world’s fi­nan­cial fu­ture.

Brics is and is prov­ing to be the an­tithe­sis of Western-dom­i­nated in­sti­tu­tions, such as Moody’s, who have a Western bias. For ex­am­ple, these are the same West-bi­ased rat­ing agen­cies who, be­fore the fi­nan­cial melt­down of 2008, gave Greece an AAA+ rat­ing, know­ing full well that the coun­try was swim­ming in an ocean of debt and that very lit­tle le­gal ten­der was cir­cu­lat­ing in its econ­omy.

China with its “soft power” for­eign pol­icy is the game changer. With a mid­dle class of nearly a bil­lion peo­ple, and its pro­tec­tion­ist cap­i­tal­ist sys­tem, the Mid­dle King­dom rules the world’s eco­nomic land­scape.

In 2015, the Chi­nese gov­ern­ment an­nounced that it would es­tab­lish the AIIB – Asia In­fras­truc­ture In­vest­ment Bank – a new funding ve­hi­cle that os­ten­si­bly was set up for Asian coun­tries to ri­val the WB and IMF. With the same in­ten­tion of dump­ing these pro-West in­sti­tu­tions, the Brics Bank was also es­tab­lished re­cently.

The Chi­nese had also, in the same year, an­nounced that it would mo­bilise 1 000 of its fi­nance schol­ars with the ex­press pur­pose of set­ting up rat­ings agen­cies that would be less West-cen­tric than Moody’s, S&P and Fitch.

Now China is be­ing pun­ished for dar­ing to take on the “old money” and “old or­der” from the West. The coun­try is clearly a threat to the West and the es­tab­lished or­der.

While it won’t de­clare war on China, the West will use ne­far­i­ous meth­ods through un­scrupu­lous agen­cies like Moody’s in its at­tempts to de-sta­bilise China.

Im­por­tantly, the mo­nop­oly of Moody’s, Fitch and S&P, which con­sti­tute 96% of the global rat­ings mar­ket, needs to be chal­lenged by ei­ther the Brics bloc or a host of de­vel­op­ing na­tions.

What is clear is that the Chi­nese have the es­tab­lished Western or­der rat­tled to the point where the West will re­vert to a win­ner-takes-all ap­proach, with lit­tle to no re­gard to facts that may harm emerg­ing economies.

As the at­tack on the Zuma ad­min­is­tra­tion grew, South Africans would have be­come more fa­mil­iar with these rat­ing in­sti­tu­tions and their sub­se­quent ac­tion of re­duc­ing the coun­try’s bor­row­ing sta­tus to junk. Cit­ing mainly po­lit­i­cal in­sta­bil­ity and high rates of un­em­ploy­ment, South Africa’s sov­er­eign credit rat­ing was down­graded. Dare we sug­gest that the real rea­son for the down­grades is the re­solve by the Zuma ad­min­is­tra­tion to re­main com­mit­ted to our Brics al­lies, and the Chi­nese in par­tic­u­lar.

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