Credit Rating Agencies in Emerging Democracies : Guardians of Fiscal Discipline?

Credit rating agencies have drawn criticism for failing to anticipate and deter root causes of the 2008-2009 financial crisis in the United States. However, this paper presents evidence that credit rating agencies regularly anticipate and deter gov...

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Main Authors:	Hanusch, Marek, Vaaler, Paul M.
Format:	Policy Research Working Paper
Language:	English en_US
Published:	World Bank, Washington, DC 2013
Subjects:	ACCESS TO CREDIT ACCOUNTING BOND ISSUANCES BOND SPREADS BORROWER BUDGET BALANCE BUDGET BALANCES BUDGET CYCLE BUDGET SURPLUSES BUSINESS CYCLE BUSINESS CYCLES CENTRAL BANKS CHECKS CIVIL LIBERTIES CREDIT HISTORIES CREDIT RATING CREDIT RATING AGENCIES CREDIT RATING AGENCY CREDITWORTHINESS CURRENCY CURRENCY CRISIS DEBT DEMOCRACY DEPENDENT DEVELOPING COUNTRIES DOMINANT PARTY ELECTION ELECTIONS ELECTORAL SYSTEM ELECTORAL SYSTEMS EMERGING DEMOCRACIES FINANCIAL CRISES FINANCIAL CRISIS FINANCIAL MARKET FINANCIAL SERVICES FISCAL DEFICIT FISCAL DISCIPLINE FISCAL POLICY FORBEARANCE FUTURE CREDIT GOVERNMENT BORROWING GOVERNMENT BUDGET GOVERNMENT FINANCES HOLDING INDIVIDUAL BOND INFLATION INFLATION RATE INSTRUMENT INTERNATIONAL AGREEMENTS INTERNATIONAL BANK INVESTMENT DECISIONS LOCAL CURRENCY MARKET PLAYERS MARKET SHARES MONETARY FUND MORTGAGES PENSION PENSION FUNDS POLICY ENVIRONMENT POLITICAL BUSINESS CYCLE POLITICAL BUSINESS CYCLES POLITICAL ECONOMY POLITICAL INSTITUTIONS POLITICAL PARTIES POLITICAL RIGHTS PRESIDENTIAL ELECTIONS REPUDIATION RESERVES SOVEREIGN BOND SOVEREIGN RATING SOVEREIGN RATINGS SOVEREIGN RISK UNEMPLOYMENT RATE WORLD DEVELOPMENT INDICATORS
Online Access:	http://documents.worldbank.org/curated/en/2013/03/17408765/credit-rating-agencies-emerging-democracies-guardians-fiscal-discipline http://hdl.handle.net/10986/13180

id	okr-10986-13180
recordtype	oai_dc
spelling	okr-10986-131802021-04-23T14:03:07Z Credit Rating Agencies in Emerging Democracies : Guardians of Fiscal Discipline? Hanusch, Marek Vaaler, Paul M. ACCESS TO CREDIT ACCOUNTING BOND ISSUANCES BOND SPREADS BORROWER BUDGET BALANCE BUDGET BALANCES BUDGET CYCLE BUDGET SURPLUSES BUSINESS CYCLE BUSINESS CYCLES CENTRAL BANKS CHECKS CIVIL LIBERTIES CREDIT HISTORIES CREDIT RATING CREDIT RATING AGENCIES CREDIT RATING AGENCY CREDITWORTHINESS CURRENCY CURRENCY CRISIS DEBT DEMOCRACY DEPENDENT DEVELOPING COUNTRIES DOMINANT PARTY ELECTION ELECTIONS ELECTORAL SYSTEM ELECTORAL SYSTEMS EMERGING DEMOCRACIES FINANCIAL CRISES FINANCIAL CRISIS FINANCIAL MARKET FINANCIAL SERVICES FISCAL DEFICIT FISCAL DISCIPLINE FISCAL POLICY FORBEARANCE FUTURE CREDIT GOVERNMENT BORROWING GOVERNMENT BUDGET GOVERNMENT FINANCES HOLDING INDIVIDUAL BOND INFLATION INFLATION RATE INSTRUMENT INTERNATIONAL AGREEMENTS INTERNATIONAL BANK INVESTMENT DECISIONS LOCAL CURRENCY MARKET PLAYERS MARKET SHARES MONETARY FUND MORTGAGES PENSION PENSION FUNDS POLICY ENVIRONMENT POLITICAL BUSINESS CYCLE POLITICAL BUSINESS CYCLES POLITICAL ECONOMY POLITICAL INSTITUTIONS POLITICAL PARTIES POLITICAL RIGHTS PRESIDENTIAL ELECTIONS REPUDIATION RESERVES SOVEREIGN BOND SOVEREIGN RATING SOVEREIGN RATINGS SOVEREIGN RISK UNEMPLOYMENT RATE WORLD DEVELOPMENT INDICATORS Credit rating agencies have drawn criticism for failing to anticipate and deter root causes of the 2008-2009 financial crisis in the United States. However, this paper presents evidence that credit rating agencies regularly anticipate and deter governments in emerging democracies from opportunistic borrowing and potential financial crises related to elections and the political budget cycle behavior they encourage. The paper considers a sample of 18 such countries holding 32 presidential elections from 1989 to 2004. The analysis shows that credit rating agencies induced greater fiscal discipline during election periods when governments had incentives to borrow opportunistically for short-term electoral gain. Countries with higher credit rating agency sovereign ratings borrowed less than lower-rated countries in election periods, but borrowed more in non-election periods. Credit rating agencies promoted fiscal discipline during increasingly frequent election periods in emerging democracies. 2013-04-12T16:55:50Z 2013-04-12T16:55:50Z 2013-03 http://documents.worldbank.org/curated/en/2013/03/17408765/credit-rating-agencies-emerging-democracies-guardians-fiscal-discipline http://hdl.handle.net/10986/13180 English en_US Policy Research Working Paper;No. 6379 CC BY 3.0 IGO http://creativecommons.org/licenses/by/3.0/igo/ World Bank World Bank, Washington, DC Publications & Research :: Policy Research Working Paper Publications & Research Africa
repository_type	Digital Repository
institution_category	Foreign Institution
institution	Digital Repositories
building	World Bank Open Knowledge Repository
collection	World Bank
language	English en_US
topic	ACCESS TO CREDIT ACCOUNTING BOND ISSUANCES BOND SPREADS BORROWER BUDGET BALANCE BUDGET BALANCES BUDGET CYCLE BUDGET SURPLUSES BUSINESS CYCLE BUSINESS CYCLES CENTRAL BANKS CHECKS CIVIL LIBERTIES CREDIT HISTORIES CREDIT RATING CREDIT RATING AGENCIES CREDIT RATING AGENCY CREDITWORTHINESS CURRENCY CURRENCY CRISIS DEBT DEMOCRACY DEPENDENT DEVELOPING COUNTRIES DOMINANT PARTY ELECTION ELECTIONS ELECTORAL SYSTEM ELECTORAL SYSTEMS EMERGING DEMOCRACIES FINANCIAL CRISES FINANCIAL CRISIS FINANCIAL MARKET FINANCIAL SERVICES FISCAL DEFICIT FISCAL DISCIPLINE FISCAL POLICY FORBEARANCE FUTURE CREDIT GOVERNMENT BORROWING GOVERNMENT BUDGET GOVERNMENT FINANCES HOLDING INDIVIDUAL BOND INFLATION INFLATION RATE INSTRUMENT INTERNATIONAL AGREEMENTS INTERNATIONAL BANK INVESTMENT DECISIONS LOCAL CURRENCY MARKET PLAYERS MARKET SHARES MONETARY FUND MORTGAGES PENSION PENSION FUNDS POLICY ENVIRONMENT POLITICAL BUSINESS CYCLE POLITICAL BUSINESS CYCLES POLITICAL ECONOMY POLITICAL INSTITUTIONS POLITICAL PARTIES POLITICAL RIGHTS PRESIDENTIAL ELECTIONS REPUDIATION RESERVES SOVEREIGN BOND SOVEREIGN RATING SOVEREIGN RATINGS SOVEREIGN RISK UNEMPLOYMENT RATE WORLD DEVELOPMENT INDICATORS
spellingShingle	ACCESS TO CREDIT ACCOUNTING BOND ISSUANCES BOND SPREADS BORROWER BUDGET BALANCE BUDGET BALANCES BUDGET CYCLE BUDGET SURPLUSES BUSINESS CYCLE BUSINESS CYCLES CENTRAL BANKS CHECKS CIVIL LIBERTIES CREDIT HISTORIES CREDIT RATING CREDIT RATING AGENCIES CREDIT RATING AGENCY CREDITWORTHINESS CURRENCY CURRENCY CRISIS DEBT DEMOCRACY DEPENDENT DEVELOPING COUNTRIES DOMINANT PARTY ELECTION ELECTIONS ELECTORAL SYSTEM ELECTORAL SYSTEMS EMERGING DEMOCRACIES FINANCIAL CRISES FINANCIAL CRISIS FINANCIAL MARKET FINANCIAL SERVICES FISCAL DEFICIT FISCAL DISCIPLINE FISCAL POLICY FORBEARANCE FUTURE CREDIT GOVERNMENT BORROWING GOVERNMENT BUDGET GOVERNMENT FINANCES HOLDING INDIVIDUAL BOND INFLATION INFLATION RATE INSTRUMENT INTERNATIONAL AGREEMENTS INTERNATIONAL BANK INVESTMENT DECISIONS LOCAL CURRENCY MARKET PLAYERS MARKET SHARES MONETARY FUND MORTGAGES PENSION PENSION FUNDS POLICY ENVIRONMENT POLITICAL BUSINESS CYCLE POLITICAL BUSINESS CYCLES POLITICAL ECONOMY POLITICAL INSTITUTIONS POLITICAL PARTIES POLITICAL RIGHTS PRESIDENTIAL ELECTIONS REPUDIATION RESERVES SOVEREIGN BOND SOVEREIGN RATING SOVEREIGN RATINGS SOVEREIGN RISK UNEMPLOYMENT RATE WORLD DEVELOPMENT INDICATORS Hanusch, Marek Vaaler, Paul M. Credit Rating Agencies in Emerging Democracies : Guardians of Fiscal Discipline?
geographic_facet	Africa
relation	Policy Research Working Paper;No. 6379
description	Credit rating agencies have drawn criticism for failing to anticipate and deter root causes of the 2008-2009 financial crisis in the United States. However, this paper presents evidence that credit rating agencies regularly anticipate and deter governments in emerging democracies from opportunistic borrowing and potential financial crises related to elections and the political budget cycle behavior they encourage. The paper considers a sample of 18 such countries holding 32 presidential elections from 1989 to 2004. The analysis shows that credit rating agencies induced greater fiscal discipline during election periods when governments had incentives to borrow opportunistically for short-term electoral gain. Countries with higher credit rating agency sovereign ratings borrowed less than lower-rated countries in election periods, but borrowed more in non-election periods. Credit rating agencies promoted fiscal discipline during increasingly frequent election periods in emerging democracies.
format	Publications & Research :: Policy Research Working Paper
author	Hanusch, Marek Vaaler, Paul M.
author_facet	Hanusch, Marek Vaaler, Paul M.
author_sort	Hanusch, Marek
title	Credit Rating Agencies in Emerging Democracies : Guardians of Fiscal Discipline?
title_short	Credit Rating Agencies in Emerging Democracies : Guardians of Fiscal Discipline?
title_full	Credit Rating Agencies in Emerging Democracies : Guardians of Fiscal Discipline?
title_fullStr	Credit Rating Agencies in Emerging Democracies : Guardians of Fiscal Discipline?
title_full_unstemmed	Credit Rating Agencies in Emerging Democracies : Guardians of Fiscal Discipline?
title_sort	credit rating agencies in emerging democracies : guardians of fiscal discipline?
publisher	World Bank, Washington, DC
publishDate	2013
url	http://documents.worldbank.org/curated/en/2013/03/17408765/credit-rating-agencies-emerging-democracies-guardians-fiscal-discipline http://hdl.handle.net/10986/13180
_version_	1764422906085900288

Credit Rating Agencies in Emerging Democracies : Guardians of Fiscal Discipline?

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