Perhaps for good reason: Moody's made a lot of Canadians mad. When the credit rater considered cutting Canada's debt, and its interest rate rose, the government suddenly faced the prospect of about $300 million in added payments on its bonds.
While just a fraction of Canada's overall debt, it was a significant cost for a cash-strapped government about to lay off 45,000 employees. The government, for example, spent about $300 million on the annual compensation of about 5,000 civil servants and the same amount on the yearly pensions of about 50,000 senior citizens.
Moody's angered Canadian Prime Minister Paul Martin -- then the finance minister -- when it downgraded the country's debt in 1995.
(Chris Wattie -- Reuters)
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Making matters worse, the finance minister thought Moody's got it wrong. Indeed, in a news conference just after his budget speech, the finance minister took the credit rater to task, saying, "It doesn't take a stroke of genius to understand that we have broken the back of the deficit and, in fact, that the rating agencies should have no concerns."
Moody's was unmoved. That April, the credit rater pulled the trigger, downgrading Canada's domestic debt rating to "Aa1," a notch below the coveted "AAA." S&P had a different take, affirming Canada's triple-A domestic rating, but it did revise its outlook on Canada's foreign-currency debt, changing it to "negative" from "stable."
Whether Moody's was right remains debatable. This much isn't: It took Canada more than seven years to get that triple-A rating back in May 2002. Martin declined to comment about Canada's rating.
Truglia played down the impact of the credit rater. "We're the metaphor for the market," he said. "There's definitely an influence, but I think it's greatly exaggerated."
Some governments disagree, especially those of poorer nations that often depend on tapping the debt markets to fund growth. "It is sometimes joked that the most important event for a developing country is having an official from a rating agency come visit them," the Financial Policy Forum, a nonprofit educational institute, said in a report last year.
The visit comes at a price. Governments usually pay six-figure annual fees for their sovereign ratings, plus $30,000 to $220,000 for each bond offering, according to rating and government officials. What a nation gets in return is an assessment of the government's ability -- or willingness -- to pay its debts.
Dominican Difficulties
Rating nations is similar to analyzing companies; whether the borrower is a government or corporation, it usually goes to an investment bank to arrange its financing. The bank also typically picks the rating companies it wants to grade the debt offering.
But sovereign ratings come with more unknowns, such unpredictable things as poverty, recessions, social unrest, wars and coups.
