'Fire Moody's if Bahamas is given a downgrade'

As of Wednesday, July 6, 2016

By RASHAD ROLLE

Tribune Staff Reporter

rrolle@tribunemedia.net

FORMER State Minister of Finance James Smith said he would suggest that the government fire Moody’s if the ratings agency follows through on its threat to downgrade this country’s credit rating.

Arguing that although the state of the country’s economy is relatively weak, Mr Smith said many countries not under threat of a credit downgrade have even worse performing economies or greater levels of debt.

The government pays agencies like Moody’s thousands of dollars a year, he noted, explaining that back in the 1990s when he was governor of the Central Bank, $40,000 per year was being paid to each of the credit rating agencies.

“It’s probably even more now,” he said.

A top-ranking official in the Christie administration did not respond to The Tribune’s question yesterday about how much exactly is being paid now.

“I don’t believe given the circumstances that a downgrade ought to be in the making,” Mr Smith said. “If they go through with it I would suggest the government fires them.”

Mr Smith said he believes agencies like Moody’s and Standard & Poor’s offer harsh assessments of countries like the Bahamas to make up for their favourable ratings of debt securities that played a major role in the Great Recession.

“Moody’s missed the ball at the beginning of the recession when they rated those in the housing market and it turned out they were literally compromising their services by knowingly giving good ratings to worthless papers which played a role in the meltdown of the world economy,” he said. “So they decided to toughen up after that, trying to make up for big mistakes. I don’t think the Bahamas and other small countries should have to suffer for that.”

Another credit downgrade would be a “serious thing,” Mr Smith said, as it would mean that the Bahamas would have to pay even more money against its existing levels of debt.

“We’ve had questionable policy decisions and the debt has been growing at a much faster level than I would’ve liked but we’ve never defaulted on our loans and there is no prospect of that happening,” he said. “This has to be a factor in their decision making. We’ve never been a part of an International Monetary Fund (IMF) programme to pay back our debts or to trim employment in the public sector and other things that happens to countries that struggle to pay their debt.”

Mr Smith said the country’s foreign debt level is relatively low and much of its domestic debt is owned by the government itself through the holding of National Insurance Board (NIB) stock.

“I would make the case that as bad as the numbers may appear by themselves, comparatively in my view they don’t qualify for a rating downgrade. That would be unnecessarily harsh and unfair.”

Shortly after the May 2012 general election, Mr Smith was appointed as a consultant to the Ministry of Finance.

Last Friday, Moody’s announced it was placing the country “on review” for a potential downgrade, due to both its unexpected economic contraction and further deterioration in the government’s fiscal position.

Moody’s pointed out that “debt accumulation” has continued to increase, with the government consistently failing to hit its budget projections, and the adequacy and effectiveness of its policy responses to the Bahamas’ problems.

Moody’s warned that any potential downgrade could be “by one notch or more.” The country currently has a ‘Baa2’ rating, two notches away from being cut to so-called “junk” status – a position where it will lose its existing investment grade status.

Hogfish 7 years, 10 months ago

stupid ass

B_I_D___ 7 years, 10 months ago

Fire Moody's...LMAO...as if that won't raise alarm bells around the world that this government can't manage sh!t

banker 7 years, 10 months ago

Oh man ... why does he say those stupid things? Doesn't he know that sovereign debt is not extended by many institutions without a Moody's rating? It is a huge red flag to international lenders.

kaytaz 7 years, 10 months ago

So because we don't like the message we should fire the messenger. ..and this guy was governor of the central bank....no wonder we in trouble stupid just plain stupid

Publius 7 years, 10 months ago

This man is an absolute and immaculate a$$

licks2 7 years, 10 months ago

Then hire whom? Or someone took his statement out of context. . .or really did one of them press interpretation "switcher-roo"! I remember one time in collage I gave a news paper interview about my college president and I was so surprised to what the paper quoted me as saying the next morning!! I called the reporter and asked her how the heck she wrote that nonsense in the paper and said that that's what I said. . ."you lie, that's not what I told you". . . "that's how I understood what you said". . she replied! So I can really understand how the press will "twist" what you say to make conform to their "thinking"! Mr. Smith can't be that naïve!

HarryWyckoff 7 years, 10 months ago

You can't "fire" Moody's. They are not hired by the Bahamas in the first place.

What a dick - terrifying he was Minister of Finance!

banker 7 years, 10 months ago

They are not hired by the Bahamas in the first place.

Actually they are. Credit rating agencies are a necessary evil if you are a sovereign state and you want to contract external debt denominated in a "hard" fiat currency like the American dollar.

There is a near duopoly of credit rating agencies. Moody's and Standard & Poor's own about 78 -80% of the credit rating market.

If a country or a company wants to apply for credit, they must pay a "recognised" credit rating agency to get the funds. The Bahamas, I believe, pays both Moody's and Standard & Poors to do economics research to create a credit report. You simply cannot float a non-domestic bond or borrow money without it.

Standard & Poor's owns 42% of the ratings market. If you want to float some debt, they charge 4.95% of the bond offering or loan or if the fee is below $80,000, you must pay the $80,000.

Moody's owns 37% of the market. They charge 5% or $73,000 which ever is greater.

So Smith is saying that we should fire Moody's. Unfortunately for debt denominated in the millions (amounts over $20 million) a lot of lenders or bond market makers require credit rating research and reports from both of them, or one of them and Fitch's which is another player. Many of them trust only Moody's or S&P, so you can't get away from not having Moody's rate you.

Observer 7 years, 10 months ago

None of you "fools" knows Mr. James Smith. You can only recognize the caucasian "professional:. Shame on yinner.

banker 7 years, 10 months ago

Actually I do "knows" Mr. James Smith, and in spite of his holding the governorship of the Central Bank, his grasp of economics is ... shall we say ... deficient?

I recall listening in to a friendly but spirited argument between him and another ex-Central Bank governor. Mr. Smith was having his clock cleaned by the other individual, realised it, and still didn't know when to quit. It was a sad display of dogma over facts, but I have since come to realise myself that this is a PLP trait. The PLP hate to be confused and contradicted by the Truth.

Reality_Check 7 years, 10 months ago

Only a Greek would hire James Smith....he should be heading up The Central Bank of Greece...if you know what I mean.

licks2 7 years, 10 months ago

A foolish statement is just that no matter whom the "foible" comes from. . .skin color has nothing to do with this. . .Lol!

John 7 years, 10 months ago

22 years ago I had a scholarship offer to attend Harvard University to study Economics and Statistics, MBA style. Family circumstances prevented me from accepting that scholarship.but today I think, would I have returned to the Bahamas if I had taken that scholarship and the job potentials that would come with it? Would I be here trying to make things better for myself and my family and Bahamians in general?

John 7 years, 10 months ago

This comment was removed by the site staff for violation of the usage agreement.

John 7 years, 10 months ago

This comment was removed by the site staff for violation of the usage agreement.

TalRussell 7 years, 10 months ago

Comrades how many of you would like to see Moody's being asked to examine the finances over at The Bank of Bahamaland (BOB)?
I have to ask, what was the this man's publicly aroused opinion, if any, in questioning political loans matters that were going on over at BOB, during his political appointments as a state minister and as the Governor of the Central Bank?
This possibly international credit downgrading around the corner are the negative results originating from both this PLP administration that that of the former regime of Papa Hubert.

banker 7 years, 10 months ago

It's not Moody's job to look at BoB. BoB was in violation of capital requirements set forth by the Central Bank, and the culprits who should go to jail are Paul McWeeney and ex-Governor Wendy Craigg who were PLP shills who had their hands in the till handing out monies to PLP cronies. She totally abandoned her fiduciary duty to insure that BoB was on the straight and narrow as the regulatory agency of record. You can't spin it any other way, even though the PLP (P1ss-poor Lowlife People) will try.

TalRussell 7 years, 10 months ago

Comrade Banker, were there no politically induced loan approvals at BOB during the regimes of Papa Hubert?
Rolled-up in a Moody's possible downgrade has to also be the billions included under the Red Shirts Movement's out of control spending, and on borrowed moneys?

banker 7 years, 10 months ago

Or you call it economic stimulation by infrastructure renewal, rather than a PLP kleptocracy where public monies line the pockets of PLP cabinet ministers. I like new roads that were neglected by years of PLP plundering. The roads have something that the PLP government needs to have done to it -- being driven over by Bahamians.

What you don't understand my dear Tal, is that infrastructure plays a huge component of economic advancement and forward motion. Have you seen the streets of failed African states?

I truly admire your sophistry and ability to turn a partial truth into a political argument. You're the best. The only victim is the Truth when you do that, but you are slick and quick at it.

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