The 46th session of the UN Human Rights Council, which concluded on March 23, examined the human rights problems faced by billions of ordinary people in the debt trap of Third World countries in the context of Kovid. The report, which highlights credit rating agencies’ atrocities in the credit sector, has been the subject of much discussion. AK Ramesh writes.
Nations and peoples will drown
More than half of the low-income low-income countries are in debt and in dire straits. Five developing countries will not be able to repay their sovereign loans by 2020.
“Unless comprehensive, effective and urgent steps are taken to provide substantial debt relief and financial support, many developing countries will sink to the brink of indebtedness, as well as the helpless nations there.” That was the warning of Yu Fen Lee who submitted the report.
Fire alarms that never sound
They sharply criticize the immoral practices of credit rating agencies around the world. They refer to such agencies as “fire alarms that never sound”.
The report also names three world-renowned rating agencies (Standard & Poor ‘, Moody’s and Fitch). Yu Fen Lee points out that there is no competition even between these big three teams. Those three are the last word in assessing debtors in the credit sector.
This “big mover” controls 94 percent of the market, and Standard & Poor’s and Fitch together make up 82 percent of the world’s credit rating business.
The work of rating agencies
Investors want the loan to be repaid. The job of the rating agencies is to serve the investors and the market by calculating the repayment potential of the borrower.
It is the duty of the rating agency to assist investors by accurately and meticulously studying the financial condition of the borrowers and the political and economic instability faced by the respective institutions and countries.
If you do not get a good rating, you will incur higher interest rates on bonds. This means that the debt burden will increase again. Borrowers will go to great lengths to avoid it. This means that these private rating agencies, which are looking for profit, have a lot of potential to inflate their pockets.
Those who build palaces with loan bubbles
Touching on the mystery of the problem, Lee says: “The main thing that leads to the conflict of interest is that the issuers of the bonds pay the service fees to the rating agencies.”
This leaves much to be desired. Concerns have been raised about whether these rating agencies will be able to make objective and impartial assessments.
They also point out that the agencies have paid a lot of money to organize high ratings. We have the experience of tearing down the thousands of people who invested in trusting themselves by giving a top rating of Triple A to mortgage backed securities that could not even command the price of paper during the American banking crisis.
They built palaces with loan bubbles, describing the collapsing institutions as superior. “Instead of trying to avoid credit crunch, credit rating agencies have made significant contributions to the financial crisis, such as the 2007 debt crisis, and the sharpening of the eurozone debt crisis and the Kovid epidemic,” the report notes.
Standard & Poor’s recently spent $ 1.40 billion on complaints that it had artificially raised its ratings and cheated investors.
The atrocities of the Kovid period
It is generally agreed that as poor countries move further into crisis with the spread of Covid, debt repayment should be compromised and prevention of disease and prevention should be a priority. But the study reveals that even the recommendations of the Debt Service Suspension Initiative of the G20 countries were blown to smithereens out of fear of rating agencies.
Some countries have been downgraded by credit ratings. These standardization committees were trampling them into the abyss by rating them as if they could not guarantee loan repayment! The United Nations has previously called for reforms in the international credit system and the urgent need to revamp credit rating agencies. This conclusion was reached by the Commission of Inquiry headed by Stiglitz (expert committee appointed by the President of the United Nations General Assembly to reform the international monetary system).
What we need to learn from this
Expert committees have pointed out that these rating agencies are unethical, ruthless and predatory. The recommendation is that they should be tightened. But in a world order far more ruthless, immoral and unjust, at a time when finance capital dominates, these recommendations will not be easily implemented. But the unraveling of this immoral and profiteering system, which capitalist thinkers themselves say should not be tolerated, is eye-opening to a number of realities that cannot even be touched. The exact lesson is that the current world order needs to be dismantled.
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