BRICS rating agency as a step towards multipolarity
Manipulations in the US rating market indicate the need to create alternative tools.
On January 26, the international agency Standard & Poor's downgraded Russia's sovereign rating from investment grade (BBB-) to speculative (BB +). The decision was expected - the company announced the possibility of such a step back in December last year, and a little later, two other members of the “big three” reported about the deterioration of Russia's assessment. Fitch published a new Russian rating (BBB–) at the beginning of the year, and on January 17, Moody's announced a downgrade (to Baa3). Therefore, in general, both the market and the experts were ready for Standard & Poor's[1]. The participants' reaction was also expected - a temporary depreciation of the ruble and the value of shares was quickly replaced by a subsequent correction of quotations.
Central to this is the motivation of the rating agency, as well as the degree of influence of geopolitical tensions on it. It is difficult to accept the fact that the downgrade is absolutely biased. The deterioration of the economic situation was already observed in 2013 before the start of the sanctions war by the West. The foreign policy crisis in which our country fell in the spring of 2014 increased the impact of internal factors. The main of them was the absence of any clear results of the implementation of government programs adopted after 2008. and aimed at changing the existing export-raw material model of a “competitive economy of knowledge and high technologies”[2].
Nevertheless, the assumptions about the “engagement” of the Standard & Poor's decision, or rather about the possibilities of the US leadership to one way or another manipulate the activities of rating companies, seem to be quite reasonable. First of all, attention is drawn to the events preceding the rating downgrade. So, on January 25, B. Obama announced his readiness "to consider all available additional options"[3] putting pressure on Russia, without specifying details. And the very next day Standard & Poor's announced a downgrade of our country's sovereign rating. At the same time, the agency's conclusions, although based on the economic component, are objectively, as noted by A. Siluanov, “overly pessimistic”[4].
It should be noted that in conditions of foreign policy confrontation, its information component itself is a factor that significantly affects the market. The planned sequence of events made it possible to declare the broad possibilities of the US leadership to influence the decisions of Standard & Poor's. However, we are still talking about the use of the regulatory capabilities of the American authorities and their skillful application of knowledge about the principles, methods and practice of rating activities of the agencies included in the "big three".
So, an important part of the work of these companies is the analysis of background information and open data.[5]which in the Western media are predominantly negative towards Russia. The already mentioned speech of Barack Obama, the constant publication of statements by European leaders about the need to develop new sanctions[6] They cannot but influence the opinion of specialists conducting an analysis of the risks and development prospects of our country. Thus, US actions aimed, according to Assistant Secretary of State V. Nuland, to create a “market uncertainty” regarding the state of the Russian economy and the possibility of cooperation with domestic companies.[7] are used, including and for the indirect impact on rating companies.
It is also important to take into account the structure of this market: all three agencies, whose opinions are significant for most investors, are in the American jurisdiction, i.e. their activities are controlled by a single body - the Securities and Exchange Commission (SEC). The tightening of requirements for rating activity, which followed the financial crises of 2007-2009, made it possible to strengthen the role of government regulation. In addition, the claims of the American Department of Justice to the activities of Standard & Poor's, presented immediately after the agency made a decision in 2011 to downgrade the US sovereign rating, and then the forced resignation of the president of the company, suggest that there are other informal instruments of influence in relation to the “big three ".
The practice of applying sanctions also showed that the United States has the opportunity to revoke previously assigned ratings, which are unreasonable from an economic point of view. For companies against which US authorities take restrictive measures, this means the actual loss of prospects for international borrowing. And this applies even to those markets that do not support anti-Russian policy. Similar actions were taken in April by 2014 of Moody's in relation to the Russian railway operator Transoil, controlled by G. Timchenko on the American list. At the same time, the agency frankly stated that the reason for the recall was “own business reasons” not related to the financial position of Transoil[8].
Thus, it is possible to talk about the existence and rather active use of methods of manipulating the activities of rating agencies. Political pressure forces these companies to apply the most conservative approaches in rating to reduce the risk of claims from the controlling authority. Given the widespread use of the ratings of the “Big Three” in international investment activities, such opportunities of the US authorities significantly affect the problem of ensuring the economic security of those countries to which this practice is applied.
Questions to the activities of the “Big Three” companies have already been raised at the highest level by European countries during the debt crisis. An analysis of the situation in their financial markets showed that the degree of impact of rating scores on participants is extremely high, and agency judgments about the reliability of certain borrowers are in themselves an important factor that can influence the behavior of investors. As a result, there is an increase in the risk of a cyclical fall, when the deterioration of the market is primarily caused by its negative assessment by the rating company, and later it becomes the cause of an even greater decrease in the forecast figures from the “big three”.
Studies by the central bank of Italy have confirmed that in crisis situations investors are affected not only and not so much by the real state of the economy and finances of the borrower, but by their own panicky fears. Thus, the low level of quotations of Italian debt obligations was largely caused by reasons that could not be controlled by the state. At the same time, they were exposed to negative external information, including information from a very limited number of rating agencies.
As a result, in 2008-2010, the role of the “big three” in the global financial system became the focus of attention of international structures, including the 8 Group, 20 Group, the Financial Stability Board, as well as regulators of individual countries. Thus, in 2009, a separate section of the G20 Statement on strengthening the financial system was devoted to issues of control over the activities of agencies. In particular, it confirmed their status as “the most important market participants” and determined the consequent need for the introduction of tough surveillance measures to ensure the quality and transparency of rating indicators.[9].
However, a change in the rules of agency activity initiated by the international community led by the G20 did not lead to the goals that were set. Providing greater opportunities to local rating companies at the level of individual countries did not allow for a change in the oligopolistic market structure. It was not possible either to increase international competition, or to seriously reduce the dependence of the financial sector and state bodies of various countries on the ratings of the “big three”.
Thus, overcoming the current situation largely depends on government support for initiatives to create new large agencies. The key to their success will be the practice of working in several markets at once, which will allow you to accumulate international experience and gain the trust of investors from different countries.
The example of the Chinese agency Dagong Global Credit Rating can serve as confirmation of the need to involve several states in the implementation of such a project. Created in 1994. the largest national company has not been able to compete with the "big three". So, its January decision to keep Russia's sovereign rating at level A[10] did not affect the opinion of market participants amid negative forecasts of the “big three”. This indicates an objectively weak capacity of national agencies to recognize their ratings internationally. Therefore, the project that will be implemented on an interstate basis by countries that have a sufficiently large domestic financial market and the ability to attract the company being established to the evaluation of large investment programs can be successful.
The most suitable platform for the implementation of such initiatives is BRICS. Its participants advocate the need to reform the international financial and economic architecture and the establishment of a “more democratic and equitable multipolar world order”[11]that implies a reduction in the influence of the West on the global financial system. Available evidence of manipulation in the rating market by the United States suggests the need to create alternative tools that will allow investors from emerging market countries not to depend on geopolitical risks and actions of individual countries outside the international legal framework.
The project can be implemented on the basis of the newly created BRICS Development Bank. This will solve several problems at once:
1. strengthen the independence of the agency from the influence of individual states and their regulatory bodies;
2. to preserve at the initial stage the possibility of taking into account the regional specifics of the economy, the specifics of the business etiquette of countries that are priorities for the agency’s activities, at the expense of a rather narrow range of assessment objects;
3. to provide agency support in several national markets and thereby increase its international competitiveness. To do this, it is necessary to recognize the results of assessments by government agencies and market regulators of the participating countries;
4. to diversify sources of financing and, if possible, to abandon the principle of payment for the object of evaluation, which can be realized if the funds are provided by the association itself, and thus to a certain extent de-identifiable for the recipient.
2. to preserve at the initial stage the possibility of taking into account the regional specifics of the economy, the specifics of the business etiquette of countries that are priorities for the agency’s activities, at the expense of a rather narrow range of assessment objects;
3. to provide agency support in several national markets and thereby increase its international competitiveness. To do this, it is necessary to recognize the results of assessments by government agencies and market regulators of the participating countries;
4. to diversify sources of financing and, if possible, to abandon the principle of payment for the object of evaluation, which can be realized if the funds are provided by the association itself, and thus to a certain extent de-identifiable for the recipient.
Prerequisites for the implementation of such a project can be seen in joint initiatives of the member countries of the association: Russia and the PRC three years ago presented the initiative to create the international rating company Universal Credit Ratings Group, which would include the Chinese agency Dagong Global Credit Rating, the US Egan Jones Rating and the Russian " Rus-Rating ". A similar project of Brazil, India, South Africa, together with Malaysia and Portugal, started in 2013 and united five local rating companies.
The goal in both cases is to gain a share of the international market and compete with the “big three”. However, as practice has shown, the efforts of private companies for the successful implementation of the tasks set are not enough. There is a need for active support from the states, aimed primarily at facilitating access to the international level and using estimates of the new structure at the level of regulatory bodies and central banks of the participating countries.
Conceptually, the possibility of creating a rating agency within the framework of BRICS was worked out by the Russian side both at the academic level (the proposal of the domestic scientific community about the “transition (BRICS countries) to the use of its rating agencies” [12] and at the state level. ”The concept of the Russian Federation’s participation in BRICS "highlights" encouraging the creation of independent rating agencies of the BRICS member states, designed to contribute to a more objective assessment of the market position of national companies and banks'[13] as a form of enhancing cooperation in the trade and economic sphere. However, these proposals have so far not been reflected in the joint action plans of the block.
The currently observed pressure on the Big Three rating companies and manipulating the results of their activities make the creation of an international rating agency within BRICS one of the strategic priorities of the Russian presidency in the organization and an important agenda item for the upcoming Ufa summit. Inclusion of this issue in the Ufa BRICS Action Plan will be an adequate response of the participating countries to attempts to use key instruments of international financial markets for political purposes.
***
[1] напр.: http://top.rbc.ru/finances/11/01/2015/54a148d09a79470990317eab
[2] http://economy.gov.ru/minec/activity/sections/fcp/rasp_2008_N1662_red_08.08.2009
[3] http://edition.cnn.com/2015/01/25/asia/ukraine-russia-obama/
[4] http://1prime.ru/state_regulation/20150126/801028949.html
[5] http://www.foreignaffairs.com/articles/142804/david-james-gill-and-michael-john-gill/the-great-ratings-game
[6] ex .: http://www.wsj.com/articles/eu-heads-call-for-more-russia-sanctions-1422351364
[7] http://www.gpo.gov/fdsys/pkg/CHRG-113hhrg87837/html/CHRG-113hhrg87837.htm
[8] https://www.moodys.com/research/Moodys-withdraws-Transoils-ratings--PR_296531
[9] http://ru.g20russia.ru/load/780974963
[10] http://www.cntv.ru/2015/01/08/VIDE1420727885357247.shtml
[11] ex .: http://archive.kremlin.ru/text/docs/2009/06/217932.shtml
[12] Perspectives and strategic priorities for the BRICS ascent. Scientific Report for the VII BRICS Summit // Pod. Ed. V.A. Sadovnichy, Yu.V. Yakovets, A.A. Akayev M.ZH MISK-INES-NKI BRICS. 2014. C. 130
[13] http://news.kremlin.ru/media/events/files/41d452a8a232b2f6f8a5.pdf
Information