Keeping the ratings agencies happy seems to be all that matters for both the Government and the Opposition.
While the Government feels relieved that its latest Budget received a favourable response from major rating agencies, in his recent speech to the National Press Club, Shadow Treasurer Chris Bowen said, if elected: "As Treasurer, I would be talking to the ratings agencies early in our term, talking them through our plans".
It is an irony that in a mature democracy such as Australia, unaccountable ratings agencies would prevail over the concerns of citizens of the country. Neither the Government nor the Opposition felt any need for gaining confidence of the citizens.
Shouldn't the Budget or Government's economic plans reflect the pledge political parties make to the voters at the time of elections? To whom should a government's accountability lie -- to the citizens or credit ratings agencies?
Beyond the issue of democratic accountability, there is also the issue of ratings agencies' credibility, often compromised by their conflict of interest. It was very clear in the classic corporate rating failure of Enron in 2001; the ratings agencies did not downgrade the company until a few days before its bankruptcy.
The height of ratings agencies' compromised conflict of interest was revealed during the U.S. subprime mortgage meltdown that triggered 2008-2009 global financial crisis. The top grade AAA ratings were assigned to large volumes of "toxic" mortgage-backed securities and collateralised debt obligations before the financial crisis that ultimately lost value. The U.S. credit rating agency Standard & Poor's had to accept a US$1.38 billion penalty for its role in facilitating the overrating of toxic mortgages and fuelling the subprime mortgage meltdown.
The spectacle surrounding the very late downgrade of the U.S. sovereign debt during the debt ceiling crisis in 2011 made it all too clear that credit rating agencies are politicised. On the other hand, the S&P erroneously downgraded France on 10 November 2011 when the European markets were still open, causing controversy.
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The credit ratings agencies have also been the subject of controversy during the eurozone sovereign debt crisis. They not only failed to predict the crisis in the first place, but also precipitated it by downgrading the ratings of eurozone sovereigns too far and too fast.
The modern credit ratings system is fraught with problems that have resulted in trillion-dollar losses and untold suffering of many nations. There is no wonder that people feel disenfranchised and are revolting with their feet against the establishment.
As Australia's own experience shows, downgrading of credit ratings does not necessarily bring an economic catastrophe, provided policies are aimed at lifting the welfare of the people on a sustained basis. Budgets should not be judged by whether they repair debts or level of deficits alone.
Instead, one should ask: Will the Budget repair the damaged environment? Will it repair fractured social cohesion? Will it reverse the rising inequalities of opportunities? Will it ensure prosperity of the majority in the long-run?
Public policy-making should not be driven by the whims of unaccountable ratings agencies which themselves suffer from credibility deficits. Instead, public policy must ensure welfare of the citizenry.
Public policy making must be participatory in a democracy, and must not remain in the domain of elite political class or a mere bureaucratic process.
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