Through the lines of Moody
Every professional group has its way of saying things. Attorneys often speak about defendants and litigation; doctors refer to their patients and to surgical procedures; and police officers talk about perpetrators and suspects.
Along New York’s Wall Street and in the conference rooms of the international financial institutions in Washington, the language has a different tone. It’s one that often obscures the true meaning and requires familiarity with the special phraseology that gave birth to Wall Street-speak.
So when Moody’s Investor’s Service outlined its reasons for downgrading Barbados’ domestic currency rating to Baa3 from Baa2, a notch above junk bond status, while affirming the foreign currency bond rating of Baa3, parts of the rationale demanded a Wall Street dictionary, such as The Language Of Money, to unlock Moody’s true warning.
It spoke of the “outlook” on both ratings as being “revised to negative”, meaning that Moody’s was setting the stage for a possible further reduction in Barbados’ ability to keep the rating at its current investment grade level.
For example, the rating firm explained its stance by saying that it took into consideration the “Government’s debt ratios [which] are likely to deteriorate even further over the next 12 to 18 months to levels that are no longer consistent with an investment grade, given the small size and limited diversification of Barbados’ economy”.
Put simply, Moody’s was firing a shot across Barbados’ bow, putting it on notice that the country’s economic picture would worsen before it improved.
“It’s clear to me that Moody’s was telling the investment community that the proverbial handwriting was on the wall, and unless the country took a determined step to bring down the deficit and limit the growth of its debt then all bets are off,” said a Wall Street analyst.
Stated simply, Moody’s warning was that the country was living beyond its means and something had to give. And that something could include health care and education, not to mention the public sector wage bill. Any strategy that falls short of a wages freeze coupled with a failure to reduce Government expenditure would spawn another problem: the country’s inability to maintain the exchange rate of BDS$2 to the US$1.
Stated bluntly, Moody’s has put Barbadians on notice about currency devaluation. That two-to-one rate, a source of considerable financial stability for almost 40 years, has contributed to the country’s high standard of living and its attractiveness to foreign investors.
That’s the straightforward fact of economic and political life in Barbados.Tony Best is the Weekend Nation correspondent up North.