Can rating agencies ruin Russian economy?


Russian Economic Development Minister Alexei Ulyukayev said that international agencies may soon downgrade Russia, adding that it would be an unfounded move, because the country's economic indicators remain at a high level. According to the minister, the decision will be based on political motives.

Russian experts believe that there is a political constituent indeed. Yet, Western experts exclude such a possibility, claiming that credit rating agencies in the West are most independent, honest, accurate, etc.

"I think that the political factor will act as the defining one in the activities of rating agencies," the Director of the Institute for Public Finance Reform Vladimir Klimanov told Pravda.Ru.

The rating of a country serves as a guide to potential foreign investors. If partners and investors have certain negative expectations related to economic development of a country, it is likely and should be reflected in the rating. Yet, rating agencies also take account of potential expectations of investors.

Will such ratings harm Russia? According to the expert, one needs to understand that Russia's foreign borrowings are relatively small and they are not expected to grow. The possible damage is small. National rating is usually associated with ratings of private companies that also have external borrowings. A rating is vital for external operations as it indicates reliability of the borrower.

Therefore, downgraded rating will obviously affect Russia's operations, especially operations of Russian companies on external markets. Yet, it will not show a serious influence on financial indicators. One can not count the number of potential partners that will not interact with the country, the rating of which is lower than what partners see as reliable. Calculating losses here is hard, Vladimir Klimanov believes.

"The experience of the crisis of 2008-2009, when many international rating agencies downgraded the ratings of European countries in advance, showed that the affected countries perceived it as a kind of political pressure on their part - Oleg Alexandrov, Director of the Center for Economic and Financial Consulting told Pravda.Ru. - China stuck to a similar position. The question itself about the possibility to downgrade the country's rating is an element of political pressure targeting certain decisions about the Ukrainian crisis.

"Naturally, it affects borrowing opportunities that are already restricted. Many banks are guided by international ratings agencies when dealing with issues of crediting for this or that country. The risks that are incorporated in these ratings reflect crediting decisions on the part of the banks from other countries."

Russia's Economic Development Minister Alexei Ulyukayev said that should international rating agencies decide to downgrade Russia, they would only show their incompetence, as there are no objective reasons for such actions. He explained that, in fact, agency ratings are  "long-term solvency rating," and Russia does not have any problem with that.

Solvency is determined by the country's ability to pay foreign and domestic debts. To date, Russia's foreign debt is less than three percent of GDP, whereas the entire national debt is only eleven percent.

Russia can repay its external debt in just one year. The draft budget for 2015-2017 has  meager deficit. In a nutshell, the macroeconomic and financial structure is stable enough.

Andrey Mikhailov


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Author`s name Dmitry Sudakov