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Portugal: “Junk” National Debt Rating Provokes Online Demonstrations

All links in this post lead to Portuguese language pages.

The “junk” rating given to Portugal’s ability to pay its public debts by independent American financial analysis corporation Moody's, has “provoked a strange, national commotion”. This is being reflected in various different displays of revolt and indignation online: multiplying numbers of Facebook pages and events; the organization of a mass simultaneous accessing of the institution's website with the objective of crashing its server (over 80,000 people responded they would “attend”); email and telephone attacks; the creation of various videos, among other things.

There was no lack of originality in the protests, as you can see in the images that illustrate this post.

Instructions on the sending of trash to Moodys from the site LixoParaAMoodys.com (Trash For Moodys).

Instructions on the sending of trash to Moodys from the site LixoParaAMoodys.com (Trash For Moodys).

Meanwhile, the Portuguese blogosphere is filled with critical analyses of the ins and outs of the analyst's classifications, and many have questioned the apparent superficiality of the more emotional reactions to the “ratings saga” given the economic crisis the country is going through.

The international financial “bailout” by the Troika – formed by the International Monetary Fund (IMF), European Central Bank (ECB) and the European Commission (EC) – is underway and based on a first loan of the value of 78 billion euros to balance public accounts.

For Carlos Mesquita, from blog O ClariNet:

Não há nada como uma campanha publicitária para adormecer o povinho, a partir de agora é só não fazer ondas e cumprir patrioticamente o que diz a troika.

There is nothing like an advertising campaign to send the people to sleep, from now on it’s: don’t make any waves and do patriotically what the troika says.

But economist Vitor Bento, of the blog Sedes from the Associação para o Desenvolvimento Económico e Social (Association for Economic and Social Development) believes that “wasting time arguing” about an “inconvenient decision” has no “consequence”.

A decisão da Moody’s é inconveniente? É. Suscita uma sensação de injustiça, quando o governo – e não só – se mostra totalmente empenhado em cumprir e ultrapassar os objectivos acordados com a Troika, tendo já mostrado esse empenho através de decisões difíceis? Sim. Mas centrar a discussão nestes aspectos e maldizer as agências de rating por estas consequências é atirar ao alvo errado.

Is the Moody’s decision inconvenient? Yes. It provokes a sense of injustice, when the government – and not only them – shows itself to be totally dedicated to meeting and surpassing the agreed objectives with the Troika, having shown this dedication through tough decisions? Yes. But focusing the discussion on these aspects and badmouthing the ratings agencies for these consequences is aiming at the wrong target.

Jurist and University of Coimbra law professor Vital Moreira agrees in part and comments with irony that “it is exactly as if, without anything having changed, actually everything has changed”:

Antes, a crise da dívida pública portuguesa era só nossa e as agências de rating eram só mensageiras de más notícias de que o único responsável era o Governo português. (…)

Agora que o Governo é de direita, passámos subitamente a ser vítimas da situação grega e da falta de determinação da UE em responder à crise do euro, e as agências de rating são cavilosos agentes encartados do mal, apostados em aniquilar os virtuosos esforços de Portugal!

Before, the Portuguese debt crisis was ours and the ratings agencies were just messengers of bad news for which the only responsible one was the Portuguese government (…)
Now that the Government is from the right, we suddenly became victims of the Greek situation and the lack of determination of the EU to respond to the Euro crisis, and the ratings agencies are deceitful agents full of evil intentions, betting on annihilating the virtuous efforts of Portugal!
The political music group Homens de Luta made an online game to "destroy the Moodys trashcan".

The political music group Homens de Luta made an online game to "destroy the Moodys trashcan".

On the blog O Albergue Espanhol, Luís Menezes Leitão points to “reactions of the highest level leaders of the State to the Moody’s decision [as] completely inopportune” and quotes Prime Minister Passos Coelho, elected on June 5, saying it was like having “been punched in the stomach”, as well as the Portuguese Head of State, Cavaco Silva, who considered the classification “an American conspiracy against European countries, in obvious contradiction of earlier statements it made on the same topic”.

Jurist Tomás Vasques, from the blog Hoje há conquilhas, Amanhã não sabemos, adds that the political crisis and the fall of the government at the end of March “dizzingly accelerated the increase in interest rates of those loan sharks protected by these [rating] agencies and made access to credit, which we need like bread in our mouths, more difficult”:

Envoltos na espuma dos dias, já nem sequer nos lembramos que, em Março, os juros dos empréstimos a três anos estavam nos 6% e hoje estão nos 19%. Como, também, não nos interessa lembrar que uma outra dessas agências de notação nos desclassificou cinco níveis, em Abril passado, empurrando-nos, então, perigosamente para o que eles classificam como lixo. Nessa altura, ninguém tugiu nem mugiu, como se isso se encaixasse num plano de descrédito do anterior primeiro-ministro.

Caught up in the haze of times, we cannot even remember that, in March, interest on three year bonds was at 6% and today it is at 19%. As we also don’t care to remember that another ratings agency dropped us down five grades, last April, pushing us then perilously close to the “trash” rating. At that time nobody made a peep, as this fit well into the plan to discredit the former Prime Minister.

Moody business

To Moodys: From Portugal, with Love. Video on Youtube by Cronicas dos Sabichoes

To Moodys: From Portugal, with Love. Video on Youtube by Cronicas dos Sabichoes

With the mission of providing investors with a rating of risk related to borrowers, in order to advise them on the best investment decisions, the “business” of the ratings agencies is sometimes confused with the “ratings agenda” as Economics Professor Pedro Pita Barros at the New University of Lisbon explains:

A vida (e sobrevivência) das agências de rating faz-se pela prestação de informação. As classificações atribuídas servem para que os investidores de todo o mundo não tenham que analisar em detalhe todas as emissões de dívida que ocorrem. Se cada investidor tivesse que olhar com minúcia todas as emissões de dívida, haveria uma duplicação de esforços e desperdício de recursos em comparação com uma análise única e depois facultada a todos os outros. O propósito último da agências de rating é fornecer informação aos investidores. E apenas enquanto fornecerem informação útil e credível aos investidores terão possibilidade de sobrevivência. Há investidores especulativos que aproveitam essa informação? Certamente. Mas também os investidores que não tenham objectivos de especular o fazem.

The ratings agencies make a living (and survive) off of providing information. The classifications they make it so that investors of the whole world do not have to follow in detail all of the bonds issuances that happen. If every investor had to look in detail at every bond, there would be lots of effort repeated and resources wasted, when compared with one analysis that is then made available to all. The ultimate goal of the ratings agencies is to provide information to investors. And only if and when an agency provides useful and credible information to investors will it have the chance to survive. Are there speculators who take advantage of this information? Certainly. But many investors who do not plan to speculate do the same.

David Silva, of the blog Criticamente Falando, calls attention to the power of influence which the ratings agencies – which he classifies as a “Dangerous Mafia” – wields over investors:

"A hacker supposedly was able to enter the Moody’s site, and inserted content which can be seen in the image above." Image from the blog of André Benjamim.

"A hacker supposedly was able to enter the Moody’s site, and inserted content which can be seen in the image above." Image from the blog of André Benjamim.

Uma das maiores críticas dirigidas às agências de rating resulta do potencial conflito de interesses nas suas atividades: são pagas pelos investidores para avaliar terceiros. O mercado da avaliação de risco de crédito é dominado (95%) por três agências norte-americanas: a Fitch, a Moody’s e a Standard & Poor’s. Não existe uma agência de rating europeia, o que impede com que a europa tenha alguma arma de ataque face às gigantes dos outros países.

One of the biggest criticisms aimed at the ratings agencies comes from the potential conflict of interest of their activities: they are paid by investors to evaluate third parties. The evaluation market of risk and credit is dominated (95%) by three North American agencies: Fitch, Moody’s and Standard & Poor’s. There is no European ratings agency, which prevents Europe from having some defensive weapon against other countries.

Concluding, Vitor Bento, reminds of the impunity of “irresponsible investors of the past” :

seria de toda a justiça que os credores fossem chamados a pagar parte da factura, já que a sua irresponsabilidade creditícia também contribuiu para a presente situação”. Mas as agências de rating não se pronunciam sobre justiça (moral). Pronunciam-se sobre riscos de investimento e é um facto que o risco de perda destes investimentos aumentou (o que não quer dizer que esse risco se materialize necessariamente).

“it would be entirely just if the creditors were called on to pay part of the bill, as their irresponsibility in lending also contributed to the present situation.” But the ratings agencies do not decide based on justice (morality). They decide based on risk of investment and it is a fact that the risk of losing these investments increased (which does not mean that this risk necessarily materializes).

The main image of the post was taken from the video Uprising to Downrating fom IamFromLx on Vimeo.

This article was written together with Ana Vasquez.

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