Business Standard

Rating agencies need to review framework: CEA

‘Global financial institutio­ns tend to accentuate spillovers for developing nations’

- AATHIRA VARIER Mumbai, 16 February

Credit rating agencies need to review their framework as they encourage spillovers, Chief Economic Advisor V Anantha Nageswaran said on Friday, asserting that they played a part in the propagatio­n of the 2008 economic crisis.

Speaking at the Indian Institute of Management-kozhikode’s inaugural annual conference on macroecono­mics, banking and finance, he said the rating agencies downgrade a country after its fundamenta­ls have already deteriorat­ed and it is time for that nation to start rebuilding.

“The role that they (rating agencies) played in the propagatio­n of the crisis was very evident in 2008 rating both in mis-valuing the collateral­ised damage, and then on downgradin­g them (the countries) in one swoop,” he said.

Noting that the countries should set monetary policies according to the needs of the domestic economy, Nageswaran said the interest of global financial institutio­ns and their clients tend to accentuate the spillovers for the developing economies.

He also said he was not very sure about the world economy becoming more fragmented as is the general belief.

“In terms of global trade volumes, it is very difficult to disentangl­e the effects of economic slowdown and the fact that there could be trade restrictio­ns, both of the tariff variety and non-tariff variety,” Nageswaran said.

“Countries are focussing on friend-shoring and re-shoring, all those things are definitely happening. So, it is not that we are in the golden era of globalisat­ion. But, based on trade data, it is difficult to make out the case that we are definitely becoming more fragmented,” he added.

He noted that de-risking the economies from Chinese supply will be a long process.

“When we talk of de-risking from China supply chain, we should be under no illusion that it is not something that can be achieved at the speed with which you can put out a tweet. It is going to take much longer,” Nageswaran added.

THE ROLE THAT RATING AGENCIES PLAYED IN THE PROPAGATIO­N OF THE 2008 CRISIS WAS VERY EVIDENT BOTH IN MIS-VALUING THE COLLATERAL­ISED DAMAGE, AND THEN ON DOWNGRADIN­G THE NATIONS IN ONE SWOOP V ANANTHA NAGESWARAN, CEA

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