Rating agencies following a narrow political agenda
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.