You Take The High Road And I Take The Low Road: Debt Ratings Warnings

Dont blame the messenger.

Jamaica's government kicked up a terrific stink with Standard and Poor's (S&P) after the rating agency again downgraded the country's debt. The newspapers reported that downgrade Jamaica's long-term foreign and domestic currency ratings from CCC+ to CCC, apparently on news of the dismissal of Bank of Jamaica Governor Derick Latibeaudiere, prompted the Government to dismiss the rating agency's reaction as premature at best (see one commentary from the Jamaica Observer). I have to laugh at the notion that "Latty" had become someone's 'buddy". S&P did not change their view, however. Surpirse! With Jamaicans rarely the kind to give up without a fight, the real conversation really sounded like "Wha' de warra?", as the Jamaican politicians yelled over to the US. S&P, not surprisingly said "We nah change nuttun. Tek weh you self!" The cartoon captures things pretty well.

What will Barbados' normally more polite and circumspect politicians do, however, with the warning shots about more debt downgrades?

CariCRIS (Caribbean Credit Rating and Information Services Ltd.), the Caribbean's regional credit rating agency has just issued a downgrading of Barbados' debt (see report): "Caribbean Information and Credit Rating Services Limited (CariCRIS) has lowered its ratings on the debt issue (notional) of the size of USD 300 million of the Government of Barbados to CariAA (Foreign Currency Rating) and CariAA+ (Local Currency Rating) on its regional scale from CariAA+ (Foreign Currency Rating) and CariAAA (Local Currency Rating). The ratings indicate that the level of creditworthiness of this obligation, adjudged in relation to other obligations in the Caribbean is high." The take away is in the last word; the debt is still of high creditworthiness. But, CariCRIS is painting signs that confirm the view that Barbados' fiscal and debt situation is worsening. In their word, "The downgrade reflects the severe impact of the global recession on the macroeconomic performance of Barbados resulting in contracting economic activity, a widening fiscal deficit, increasing public sector debt levels and a deteriorating current account contributing to a balance of payment deficit." This is not news.

However, the concerns are not going to go away soon. Today's Advocate reports that Standard and Poor's (see attached image) have warned that another downgrade may be coming if Barbados' fiscal position is not tightened (i.e., improved) from 2010 onwards. That's a clear road map, already drawn by the IMF a few months ago, that points two ways--high road or low road. No one here can say "No one told us this would happen." If one does not deal with a debt burden it will become a burden till your death.