Statement on Credit Rating integration into the World’s economic governance system
Over the recent period, the world has been facing major economic challenges threatening long-term stability. In Europe, the UK’s referendum on its EU membership has disturbed financial markets and highlighted the growing distrust towards economic and political institutions. China, at the same time, is experiencing slowdown and gradual reforms. In South America, many markets are going through sharp recession. The drop in oil prices has at the same time created a major strain for oil producing countries, in particular in the Middle East, weighing on their banking and credit system. In the Eurozone as well as in the USA, quantitative easing lacks the ability to stimulate real economy and negative interest rates are still inhibiting growth. In all of these contexts, it seems that the lessons of the last global crisis have not been taken. Since 2008, global debts have risen much faster than growth. The main engines of global GDP are weakened by sluggish investments, overcapacity and low demand. Against such a background, we have to take all possible measures to avoid the next global credit crisis.
We believe global awareness about credit risk must be strongly improved. In this respect, reforming global credit rating is key for better risk assessment. Today, in the global agenda, there is a momentum for such an objective. In less than two months, the eleventh G-20 Summit will occur in China for the first time, in the city of Hangzhou, and offers the chance to deal with this fundamental issues. Despite their responsibility in the 2008 turmoil, the so-called Big Three, composed of the major US agencies, still remain leading actors in a highly concentrated market. However, credit rating agencies remain decisive in managing financial risks and avoiding correlated crises. The fact that the main agencies have been unable to prevent crises in the past has shown the necessity of reinventing the system of risk evaluation as part of an overall reform of the global economic governance. In this context, it seems necessary to give a new impulse to the credit rating thinking. Tools of credit rating as well as methodology need to be renewed in a cooperative way.
In recent times, we have witnessed the demanding efforts of the international community to improve global regulation in a positive and cooperative environment. That was the case at the end of 2015 with the COP 21 held in Paris as well as in 2016 with the reform of the IMF governance. Reforming global governance is not only about correcting shortcomings and deficiencies in regulation. It is also about building adapted instruments ensuring stability and security, especially regarding risk monitoring. As members of the International Advisory Council of Universal Credit Rating Group (UCRG), we firmly support initiatives devoted to promote best practices exchange and new methodology on worldwide scale. What we need is setting up a more balanced system breaking with Western hegemony, a system of credit rating more reliable, more independent and more transparent, in which Asia plays a major role. The Chinese Prime Minister, Li Keqiang, has emphasized that reforming credit rating was a priority for China. In this way, UCRG has been working on global and local approach to credit rating in order to improve fairness, diversity and efficiency.
Restoring confidence is a priority. Trust towards credit rating agencies has been eroded by a series of recent crises as well as trust between creditors and debtors. Corporate, private and sovereign debts have exploded over the previous years. Because we are living in an interdependent world, the risk to national markets is strongly connected to global economy. That’s why cooperation has become so crucial in managing changes. We also need to show innovation through ambitious projects. Only in this way can the global economy be put back on track and credit rating renewed. Innovation and cooperation are keys to boost both growth and confidence.
All available opportunities must be seized, like the coming G-20 Summit, to raise international awareness about the decisive issue of rebuilding credit rating. Given the current economic uncertainties, we need to further work together on improving global stability, especially in terms of financial regulation and risk assessment. Representing more than 80 % of the global GDP, the G-20 has a specific responsibility in addressing this challenge and it offers a cooperative framework to deal with financial stability as a global public good. Credit rating, of course, must be at the heart of the coming debates. This meeting could give opportunity to launch global initiatives on the sideline of the Summit like a special meeting of experts and leaders involved in the credit rating. A Credit rating G-20 could also be launched following the examples of existing initiatives like Youth G-20 (Y-20) or Business G-20 (B-20). This CR-20 would be a place of sharing, debates and projects allowing discussions between various players like agencies, regulators, scholars and officials.
We also need to put forward exemplary and innovative projects to restore growth and investment. In the age of multipolarity, the One Belt One Road initiative is an emblematic example of cross-border program that could boost real economy on a long-term basis. By strengthening investments in infrastructures along more than 60 countries, the One Belt One Road will not only foster development in Asia, Europe, Africa and the Middle-East, but also increase trade as well as cultural and political links between the stakeholders. Credit rating will be crucial to guarantee both credibility and effectivity of this project that requires new ways of financing like Silk Road Bonds devoted to the initiative. Through building innovative tools of risk evaluation for infrastructure projects, integrating legal, financial and environmental criteria, credit rating could play a major role in the success of the One Belt One Road and of future projects. It is the aim of the UCRG Forum to discuss all these perspectives and to find a path to a more stable and dynamic economic environment.
Dominique de Villepin, Former Prime Minister of France, Chairman of the International Advisory Council of UCRG
Members of the International Advisory Council of UCRG:
H.E. Kevin Rudd, former Prime Minister of Australia
H.E. Shaukat Aziz, Former Prime Minister of Pakistan
Mr. Igor IVANOV, Former Minister of Foreign Affairs of the Federation of RussiaDr.Alejandro Toledo,NFormer President of Pe