T

he raging global financial crisis has shown the dark side of credit ratings agencies, which tend to apply double standards in rating developed and developing economies, a seminar revealed Sunday.

In a seminar discussing an oversight of ratings agencies from the perspective of developing countries, criticism has been raised again over the agencies' insistence on maintaining their benchmarks to assess a country's economic health.

"There are double standards in which developed and developing countries are treated differently. Developed countries can carry a high ratio between debt and gross domestic product *GDP* for a long time, and people just take it for granted that *developed countries'* debt management is more sustainable," Joanna Chua, a Citi economist based in Singapore, said during the seminar.

She added debts had been increasing faster in developed countries than emerging markets, but still ratings agencies gave higher ratings to developed countries than their emerging counterparts.

China, for instance, has an A+ rating, despite having about US$2 trillion in foreign-based assets, while the US, whose economy is reeling, is still rated AAA, according to Chua.

"With the $2 trillion, China can easily pay off its debts," she said.

She also questioned the sagacity of ratings agencies when they gave the now-defunct financial giant Lehman Brothers a AAA rating.

Higher ratings help cut overseas borrowing costs for a country and its companies because their risk is deemed lower.

In a previous discussion, Jeffrey Carmichael, CEO of Promontory Financial Group, said it was a blatant fact even the most "independent" institutions could not give any assurances, and therefore countries and even individual investors had to rely on their own judgment.

Even multilateral financial institutions, he went on, like the World Bank and the International Monetary Fund (IMF) were "unable" to spot the problems as they arose, as "they deal with much political sensitivity".

Eleka Okorotchenko, an analyst with ratings agency Standard & Poor's, countered the criticism, saying ratings agencies had given high ratings to developed economies because they had managed to sustain a large fiscal deficit all this time, proving their economies were flexible and sustainable.

However, she said, developed economies were not immune to a ratings downgrade, as seen in the case of Ireland and Spain, which are bogged down in the global financial turmoil.

"We have downgraded the ratings of developed countries like Ireland and Spain," she said.

Ratings are meant to give investors a clear and easy benchmark to compare one entity with another, according to Okorotchenko.

"There is a probability of a 3 percent default every 15 years *even for AAA-rated firms*. There was an expectation the government would bail out Lehman, but they did not step in," she said.

As for Indonesia, which is still rated BB- (several levels below investment grade), Okorotchenko said the country was "on a stable outlook, not negative".

Rahmat Waluyanto, director general of debt management at the Indonesian Finance Ministry, said the country's economy was fundamentally strong, and therefore deserve a higher rating.

"More than 50 percent of our bonds are rupiah-denominated, and the rest come from multilateral institutions. I can assure you we are not vulnerable to default," he said.

However, most investors still consider Indonesia's overseas investment products "junk" because of the high risk as reflected by the ratings.