Don’t mind what you hear from the rating agencies. They can rate, but we have to perform. As long as we have overpayments on the National Insurance Fund, as long as we have foreign reserves, as long as we have a liquid banking system, which includes the credit unions, we have nothing to be worried about. – Minister of Industry, Small Business and Rural Development Denis Kellman on the latest downgrade of Barbados’ sovereign credit rating by Standard & Poor’s, July 19.
The reaction of the politician to bad news is almost always predictable.
This is because the often unstated goal of the politician is that of self-preservation, and the real purpose is one of “enlightened” self-interest.
It was therefore not surprising when St Lucy MP Denis Kellman, a leading politician of the ruling Democratic Labour Party (DLP), was so offhandedly dismissive of the downgrading of the country’s international credit rating to junk bond status.
For many of us, that type of reaction from a politician was perhaps only to be expected, although some of you reading this might have expected the comment from a much more senior DLP politician than Kellman.
When that comment did come late Friday from Prime Minister Freundel Stuart, it was equally as dismissive. “I am not perturbed by the expression of the opinion of the ratings agency.”
However, the real politically surprising response to the downgrade was the almost angry-sounding reaction of the Governor of the Central Bank, Dr DeLisle Worrell.
“Nobody can dictate to you what you should or should not do, and the things that people say about your policies, even when they are wrong things, do not affect your policy,” he declared. “It is up to us and it is up to our Government, to our private sector, to say what the things are that will drive the future growth of your economy, and to invest in those things.”
This fierce pushback on the international rating agency by an obviously upset governor was compounded by the fact that while he was expressing surprise at the agency’s move, Minister of Finance Chris Sinckler appeared somewhat nonchalant about the news, or, at the very least, untroubled.
His immediate response? Don’t panic (sounds familiar?)! This country is being well managed.
“It’s not a total blowout in the face of a collapsing world economy and high oil prices,” Sinckler averred. “We know what we have to do but we have to be patient and responsible.”
The complication of the collective politician’s response was even further compounded by Kellman, who seemed to suggest that the downgrade may turn out to be a blessing in disguise.
Readers may recall that when Barbados’ domestic credit rating was downgraded by Moody’s in June 2011, the Minister of Finance reacted this way: “It is not the end of the world.”
He was quickly followed by Stuart who said that “it was nothing to be ashamed about”.
These reactions from the politicians are consistent with self-preservation and self-interest.
So, I have to ask, what would have inspired the economist and technocrat in Worrell to utter the following: “I am satisfied that the downgrade represents a lack of understanding of the Barbadian reality and that is the point we are making, and we are on the attack rather than on the defence.”
To whom is the governor referring when he said “we”?
In fact, the language used by Worrell sounded more political than technical: “We have got to have confidence in ourselves. How this economy does and how it goes depends on Barbadians.”
This seems to suggest that the governor is dismissive of the opinion of an internationally reputable credit rating agency like S&P.
The political dimension emerges from this unfortunate turn of events when it is recalled that last year on the S&P downgrade of Barbados’ domestic credit rating, there was no tongue-lashing from the governor or the politicians; rather, it was Moody’s Cornwell that was in the firing line.
This time around, S&P is the one downgrading Barbados’ international credit rating, and Moody’s won’t have the sell their Cornwell.
In recent weeks, the Minister of Finance admitted that the Government has agreed to a policy-based loan with the Inter-American Development Bank (IDB) which gives access to US$33 million that hopefully would be increased to US$50 million. It is therefore difficult to understand what the governor meant by the use of the term “dictate”.
All of us, economists and laymen, know that the IDB must agree with the policies before it approves the loan.
Now, according to the experts, the difference between this recent downgrade by S&P and last year’s by Moody’s is that the latter was on the country’s domestic credit rating, while the former was on the international credit rating. The negative implications are on the cost of accessing foreign money and the future availability of foreign money to Barbados.
They also suggest that companies are not allowed to hold bonds which are classified as junk, since they are below investment grade.
Typically, credit ratings are used by governments, especially small governments, to open capital markets which might otherwise be inaccessible.
Ratings are important because all governments have to borrow money from both local and foreign sources. If foreign money is not readily available, it creates a greater reliance on using domestic money to finance the government’s fiscal deficit and debt.
Such was the attacking mood of the governor that when asked what the downgrade to “junk bond status” meant for the private sector, he curtly explained that the rating was on foreign debt and not on domestic debt and therefore did not apply to local investments. End of story.
So, you might ask, why does a country need an international credit rating in the first place if it does not make a difference?
In the face of the recent downgrade, there must be political implications. These implications make take the form of timing, impact on the economy and the assessment of the Government’s promises and performance.
It is important to note the fact that the rating comes from an international agency which clearly takes away any political bias that may have been associated with a local agency or institution.
• Albert Brandford is an independent political correspondent.
