The too much power of the credit rating firm.

 

 

Rating Agency	Rating	Outlook
Moody’s Investor Service	Baa3	Stable
Standard & Poor’s	BB+	Positive
Fitch Ratings	BBB-	Stable
Japan Credit Rating Agency	BBB-	Stable
Rating & Information Inc.	BB+	Positive

 

Rating above is the sovereign credit rating of Indonesia, generally the rating puts Indonesia as a developing country with a good score of credit rating, Indonesia is better than Portugal but still under Italy credit rating. Petterson Douglas CEO of S & P said that Indonesia sovereign credit rating could go up to BBB-or BBB + in 2012, and that’s good news for Indonesian. With a good rating, Indonesia became the target of foreign investors to put money in the country; at the same time the middle class in Indonesia rose to 120 million, the amount of potential to increase the domestic market in Indonesia. But credit rating from international firms has its own problems. Some of the rating policy is considered too political and often make a fatal mistake. For example AAA credit rating (the highest rating in Standard and Poor’s) were given to large portions of even the riskiest pools of loans. Investors trusting the low-risk profile AAA That implies, purchased large amounts of CDO (Collateralized debt obligation) that later become unsaleable. Those that could be sold often took staggering losses. For instance, losses on $340.7 million worth of CDOs issued by Credit Suisse Group added up to about $125 million, despite being rated AAA by S&P, Moody’s also give Aaa to Suisse Group. One day before Lehman Brother collapse, the sovereign rating by S&P is AAA. And many other stories about the errors of the credit rating agency. Xie Xuren the China ministry of finance has warned that the power of credit rating agencies can make you happy but at the same time it can be devastating. Nicholas Sarkozy also said the same thing after the S & P lower down the France credit rating, which he said did not fair. Overall credit rating agency has three problems: 1. Corruption and dirty play by the CEO and top-level official. 2. Fragile over political repressive. 3. Human error during the research.

Countries in the Asia Pacific rely heavily on credit rating agencies to invite foreign inventors to invest in their country. The circumstances are very dangerous because developing countries do not have the bargaining power toward credit rating agencies, so they have a difficulty to negotiate with the agencies. Negotiation is important because the developing countries should explain what kind of economy development that can be done and cannot be done in their region, so they can achieve the effective and efficient economic development. In contrast to China which has the political strength to withstand the power of the rating agency, the political strength that the countries in Southeast Asia doesn’t have, so the question is how or in what medium that the countries in South East Asia can negotiate with the credit rating agency.

Countries in Southeast Asia such as Indonesia, Malaysia and Myanmar have to use regional organizations like ASEAN. ASEAN has AEC (ASEAN Economic Community), which plans to create a regional economic integration by 2015. AEC has a plan of long-term regional economic development such as :(a) single market and production base, (b) highly competitive economic region, (c) region with equitable economic development, and (d) a region fully integrated into the global economy. If the AEC run properly, it can be a dialogue partner for the credit rating agency. One of the function of dialogue is to talk about the market mechanism desired by investors, credit rating agencies know the map of investment and interest of the investors, but the credit rating agency must know the capacity of a country to run the money from investors, equal and mutual dialogue is essential for both parties. In the past, credit rating agencies doesn’t have the medium for dialogue with developing countries, especially in South East Asia. Without mutual dialogue the credit rating purpose is very premature, it could be harmful to the economic development of developing countries.

The power of credit rating agencies must be balanced with mutual dialogue, thus the healthy economic development with the support of investors is achievable.