The resignation of Standard & Poor's chief executive of following the agency’s downgrading of the U.S.’s credit rating, reveals the fragility of the whole risk rating system.

Rating agencies are in the pillory, especially after episodes like the mortgage crisis of 2008 - or before that- the shameful Enron episode. It is not helping that it was the president of S & P who was the fuse that went off when the system became overheated by the sacrosanct downgrading of the United States’ rating.

Managers of the agencies insist that they are only issuing opinions and not investment recommendations, let alone guarantees, on the quality of the credit they rate. And they are partly right, because warnings to this effect accompany each and every one of their communications.

What the rating agencies do not say, of course, is that they do not object to their qualifications being considered essential for the financial system, and in many countries, including Costa Rica, financial credit institutions and all debt issuance in the stock market, must be qualified by an approved rating agency. Therefore, many an investment manager will justify their decisions and bad investment losses hiding behind the claim that "the risk ratings were excellent ..."

Beyond credit rating agencies taking the blame, we must also consider the sad role of government agencies who supervise the financial system, which have relied on those rather than doing the audit work for themselves. It is a dangerous expression of fondness for convenience and irresponsibility, typical of many public officials.

Also to blame are failed investors, who want the state to look after them and watch out for their interests when it is imperative that they exercise their own discretion and responsibility, before deciding on any investment.

Reference: Article in El Financiero, Costa Rica, Issue 5-11, September 2011.(Http://www.elfinancierocr.com/ef_archivo/2011/septiembre/11/finanzas2893677.html)

More on this topic

Negative Outlook for Panama's Debt

October 2020

Based on the argument that there is no significant fiscal consolidation and sustained economic recovery, the rating agency decided to downgrade the government's long-term issuer rating perspective from stable to negative.

Although the outlook was modified, Moody's decided to maintain the long-term issuer and senior unsecured debt ratings at Baa1.

Nicaragua: Risk Rating Continues So Far

November 2019

Standard & Poor's warned that if in the coming months the political environment worsens or access to local and external financing deteriorates again, the debt note could suffer further deterioration.

In November 2018, the agency reduced from B to B the rating of Nicaragua's foreign currency debt with a negative outlook, arguing that the country's fiscal and financial profiles have weakened at that time.

Panama: Risk Rating for Debt Issuers

December 2015

The Superintendency of Securities is working on a proposal that would make mandatory to have a risk rating on each debt issuance registered in the panamanian market.

The initiative put forward by the authorities of the Panamanian stock market comes days after the collapse of the Panamanian RG Hotels Company, which in 2012 issued bonds with unrated debt risk, leaving investors who bought these securities unprotected.

Fitch Downgrades Mexico to 'BBB'

November 2009

Fitch downgraded Mexico's Issuer Default Rating (IDR) from 'BBB+' to 'BBB' in foreign currency and from 'A-' to 'BBB+' in domestic currency.

Both ratings have a 'Stable' outlook. Additionally, the country's ceiling was reduced to 'A-' from 'A'.

Fitch downgraded Mexico's ratings because the country's fiscal situation has gotten worse with the financial crisis and a reduction in Mexican oil production.