The Stock Markets Know Best

Credit rating does not measure up to the fabled pot of gold found at the end of the rainbow. It is a useful yet belated minimal passing rate, when the stock markets have noted the merits accumulated by a country, rather than by the credit rating agencies. This is what is happening with Uruguay. Fitch Ratings and Moody’s increased our country’s ratings by one notch — allowing us to now be a step closer to regaining our credit rating that we had once maintained for five years, until we lost it during the financial quagmire of 2002. It is likely that Standard and Poor, the other credit rating agency, will follow the same path. In the meantime, we continue to be within the category of countries whose national debt is regarded as a possible pay off, yet uncertain.

There is a contrast between this prudent technical definition and the stock market’s perception. The latter is where the demand for Uruguayan bonds is rising at an even higher price because of its reliability. Bank of America, the largest commercial bank in the United States, has just forecasted that its demand will continue to rise. This investment confidence is based on past and present occurrences. In comparison with Argentina and many other countries, Uruguay has never had a suspension of payments, not even when we were at the verge of a standstill nine years ago. Currently, it illustrates a comparatively healthy situation at a macroeconomic level.

In spite of an unwise excess in public government spending and an inflation rate that is difficult to reduce, the government has officially committed to create a small cushion of reserves and lines of credit for emergencies, so as to bring down their massive national debt. These cushions will absorb possible external upheaval that stem from the tempestuous European weaknesses and the United States’ problematic issues. The approval of the Uruguayan government’s law also stresses contributing to foreign investments for infrastructure projects, economic growth and an additional warranty that the country will have at its disposal the resources necessary to maintain a strict payment of the national debt.

Despite all of these factors, the credit rating agencies continue to be parsimonious in admitting what the stock markets have already established. Maybe they do it in order to minimize the risk of making the same mistake. In 2008, the tradition of unequivocal oracles regarding the financial soundness of countries and companies collapsed when institutions with unbeatable strength fell in a blink of an eye during the global financial crisis, created by the U.S. mortgage market.

It is just as important to attain the credit rating again as it is to have a graduation diploma to hang on your wall. Something that seems much more important and is currently underway is that investors continue to pay higher prices for those Uruguayan bonds of national debt; they continue to invest their capital in the country for productive ventures, in order for the the country’s risk to remain among the the lowest in the region and in the world. It seems likely that the credit rating will be welcomed only if it returns in the near future. However, this welcoming will not set the bells ringing because this will merely affirm the prestige once gained by Uruguay throughout the previous years among the foreign investors and markets.