Marcus Evans Group | Worldwide Headquarters | American Offices | Latin America | European Offices | African / Asian Offices

Standard & Poor’s man behind US credit downgrade rejects blame for market rout

Standard & Poor’s David Beers rebuffs criticism and says developed economies need to address debt problems

The man behind Standard & Poor’s downgrade of the US credit rating said on Friday the agency was not to blame for August’s stock market rout, and warned that developed nations still needed to “get their act together” to tackle their debts.

S&P cut the United States’ prized AAA rating one notch to AA+ on 5 August, exacerbating a sell-off in global stock markets that had already been hit by Europe’s growing sovereign debt crisis and fears of a renewed US recession.

“From our perspective, it’s an oversimplification to say this was happening because of S&P’s downgrade,” said David Beers, S&P’s global head of sovereign ratings, referring to criticism that the move caused volatility in the market.

S&P is one of three main firms that analyse the creditworthiness of businesses and sovereign states, along with rivals Moody’s and Fitch. They have faced severe criticism for their failure to predict the credit crunch and subsequent bank insolvencies.

S&P’s officials have said the US downgrade was mostly based on their view that politics in Washington has become too divisive to ensure more deficit-reduction measures are adopted next year.

The US vice-president, Joe Biden, said he believed the downgrade was excessive and the resignation of the S&P president, Deven Sharma, this week was recognition by the firm that it had been wrong to be overly cautious.

World stocks, as measured by MSCI’s All-Country World Index, have fallen more than 17% from their May high as markets lose faith in the ability of politicians in rich economies to tackle debt burdens.

In Europe, investors are increasingly worried that eurozone leaders have been unable to contain the debt crisis that has swamped Greece, Portugal and Ireland and now threatens bigger, much harder to save economies such as Spain and Italy.

Japan, meanwhile, with a public debt twice the size of the tn economy, is looking for its sixth leader in five years after prime minister Naoto Kan confirmed on Friday his intention to step down.

“We’re waiting to see if the governments can get their act together and address both the short-term and long-term issues,” Beers told journalists at a press conference in Singapore, referring to developed countries in general.

He added that monetary and fiscal tools that could be used to boost sluggish economic growth would be of limited use if households in rich nations continued to focus on reducing their own debt rather than spending.

“One of the lessons that we’re perhaps learning from this crisis, and this applies to many countries, not just the US, is the limits of what these sorts of fiscal and monetary policies can achieve,” Beers said.

S&P,also said that the outlook for Asian sovereigns was stable, but was showing some downside risks.

Most Asian countries, especially those such as Singapore, South Korea or Taiwan with a higher share of exports to western countries, would be hurt if the US or European economies continued to slow, said Elena Okorotchenko, managing director at S&P. © Guardian News & Media Limited 2011 | Use of this content is subject to our Terms & Conditions | More Feeds