04/02/2011

Revolutions unpopular among rating agencies

After degradation of the sovereign rating of Tunisia on 19 January 2011 by Moody’s and that of Egypt on 31 January 2011 by the three rating agencies (Standard & Poors, Moody’s and Fitch), Standard & Poor’s now threatens to degrade the ratings of Algeria, Jordan and Morocco at any social uplift. Remember that the role of rating given by rating agencies a country is to assess the ability of this country to honor its commitments on the basis of an assessment of economic and political risks. Thus, in a statement, Moody’s explains the downgrading of Egypt « by the recent and significant increase of political risk. » The agency also asserted that « political instability and unrest will slow economic growth in Egypt and affect public finances. (…) After a week of protests, violent in part, Egyptian President Hosni Mubarak reshuffled the government on January 29. But the protests continued. « 

Before recent events, however, the rating agencies seem not to have seen particular signs of instability or political risk in those countries. Tunisia and Egypt were among the good pupils of the International Monetary Fund (IMF) and rating agencies as they respected the fiscal orthodoxy and offered investment opportunities to the West. However, the internal legitimacy of these regimes was close to zero and the political balance was assured thanks to the strong support of Western powers. Repression, torture, monopolization of wealth, all of these had no impact on political and economic stability according to these agencies. Contrariwise, since these conditions allowed the business to prosper.

Today, Tunisian and Egyptian peoples take their destiny in hand and seek to escape the political and economic domination of the ruling caste. While these movements create real hope for political and economic renewal for Arab peoples, rating agencies and financial institutions are frightened. The vocabulary used by them betrays fear. Everywhere it is question of risk, contagion, instability. Never opportunities are mentionned. These agencies are quick to issue a negative opinion without any real consideration of the potential on the long term of the new situation and without considering the catastrophic consequences that such a downgrading of the rating could have on the emancipation movement. The struggle against dictatorship and the possibility that this fight widens to economic domination create uncertainty and are therefore not good for business.

By downgrading ratings of Tunisia and Egypt, and threatening Algeria, Jordan and Morocco to degrade theirs in case of social upheaval, rating agencies Standard & Poors, Moody’s and Fitch show that democracy and the will of the people are not part of their concerns unless they participate in economic and financial objectives. But for now, markets prefer dictatorships.

Iman Bahri