[Viewpoint] Credit’s hardly due to Moody’s & Co.There are some company names you prefer not to hear. For us, Moody’s Investors Service is one.
Moody’s is usually the first of the three widely known U.S.-based credit rating agencies to raise or lower a credit rating. When Moody’s makes a move, the other two - Standard & Poor’s and Fitch - tend to follow, and to follow suit.
The threesome act really gets going whenever globally sensitive news hits the market. We know this from firsthand experience.
Moody’s hit us hard during the Asian currency turmoil in 1997 by dragging down Korea’s sovereign credit rating to the quasi-speculative Ba1 level from an investment grade of A1, and the other rating agencies made similar strikes.
We were diagnosed as unreliable and unhealthy, and therefore sent into a rehab program run by the white-coats of the International Monetary Fund. We learned for the first time the power a private ratings agency can exert.
Moody’s changed our country’s status in just 23 days. The rating agency downgraded South Korea’s long-term debt by six notches in three separate tranches from Nov. 28 to Dec. 21, 1997.
The downgrade was exceptionally quick. Its “below-investment grade” or “substantial risk of default” thrusts couldn’t be parried. S&P and Fitch soon joined the call that the Korean economy was risky.
And that was that. No matter how much we argued that Korea’s fiscal status was healthy and its fundamentals were strong, nobody listened. Nobody wanted to lend dollars to a Korea Inc. branded as financial bums.
The government and banks could only watch as companies and other banks became insolvent. When we sought loans, foreign lenders told us to come back with a higher credit rating.
Moody’s last month raised our sovereign credit rating to the pre-IMF crisis level of A1.
It took the company 23 days to pull the rug from our economy, but 13 years to restore its status. And during these years, Moody’s was given the red-carpet treatment. When its analysts visited each year, senior Finance and Economy Ministry officials trotted at their sides to faithfully serve them.
Moody’s also gave Japan a hard time. Japanese bureaucrats complain that Moody’s suits arrived at their doors every time the country had some trade friction with the United States or political strife.
In May 1998, Moody’s downgraded Japan’s top-notch credit rating, citing incompetence in the country’s political system and leadership.
Japan’s finance ministry hit the ceiling for using a political yardstick on economic analysis and refused to accept the review. The government threatened to evaluate Moody’s.
But the rating agency didn’t blink. Atop its high horse, the agency warned in 2000 it would downgrade Japan’s credit ratings again. Japan backtracked and its finance minister had to beg Moody’s to reconsider.
Japan, however, took retaliatory action by growing two rating agencies of its own, R&I and JCR. The government invested heavily in the two agencies, but only small Southeast Asian countries are their clients. They’re no match for the international credit agencies that dominate global capital markets.
Korea, too, tried to foster its own agencies since the financial crisis. But of the three, two have been merged into Moody’s and Fitch. NICE Investors Service, the only survivor, hopes to start assessing other government debt. But its clients will likely remain a few Eastern European and Southeast Asian countries.
Local agencies have had a hard time defending local clients, and can’t dream of throwing down the gauntlet against international companies like Moody’s.
That dreaded name is making news once more as the debt crisis in Europe has put the multinational agencies in the hot seat.
The three are being demonized for creating the mess by acting late, in concert, and arbitrarily, rather than shedding true light on the quality of Greece’s bonds.
The European Union declared it will investigate how these agencies conduct their due diligence. Germany went one step further, urging its EU partners to create their own rating agency.
Now is the best time to start a whole new ball game. With Europe taking the initiative, we should drum up support to create an internationally-accredited rating organization or a watchdog over rating agencies.
Our country is in the best position to make the call as we have already been in the sour spot. How about raising the issue when G-20 finance ministers meet in Busan in June to set the agenda for the November summit conference?
We must stop private companies with conflicts of interest and a highly dubious track record from playing God with sovereign states.
*The writer is a business editor of the JoongAng Sunday.
Translation by the JoongAng Daily staff.
by Yi Jung-jae