So much for Rating Companies

In the midst of US sub-prime mortgage crisis. People blame the credit rating companies for not being able to foresee this. I personally thought that it’s the investors’ fault for believing them. Rating companies does provide a sense of security to investor. Having a myriad of tools and data at their disposal to analyze the risk of a particular treasury bonds they really should have known better. I give my sympathy to my friends who receive a blow on their portfolio because they believe in these rating companies.

Anyhow, I would like to tell you why I don’t take what these rating companies (the World Bank included) say 100%. The first one is the most crucial one. 2 years ago they underestimated Indonesia’s economic growth by 0.35%. 6 months ago Sarapan Ekonomi commented again that they also underestimated Indonesia’s growth by 0.25 %. Which I think is quite embarrassing. Is that really the quality we are looking for in a rating company and/or forecasters?

Second of all is my purely personal thought without any evidence. These rating companies are complicit at being biased. Most of the big names in Rating/ forecast providers are US based. Although one might argue that their loyalties lay with the dollar not the country. I think that it’s not 100% true. Their sense of patriotism (arrogance) is what makes overestimating their own economy and other estimating other economy, more specifically in the ASEAN region. To make matter worse, these ratings are what investors are looking at before they decide to invest.

You might say that the second reason might apply to me as well, and I don’t deny it, I might be biased to the ASEAN region. But let’s face it, America’s economy is in a downward spiral, they are experiencing a continuous deficit, their interest rates are climbing. Isn’t it time to call their bluff and become a more rational investor? In Indonesia, people are crying that foreign ownership have taken over, but its our own fault for not believing in our own economy. SBY once said “Kalo investor dalam negeri aja ga mau menanamkan modal di Indonesia, gimana investor asing bisa percaya” But now foreign investors have seen Indonesia’s potential, it is now time to build up our economy.