Political risk and the politics of risk: perceptions and interferences by the rating agencies in Brazil and Argentina

Abstract

This thesis examines the behavior of rating agencies in the face of political and economic events in developing countries. It starts from the diagnosis that Standard & Poor's (S&P), Moody's Investors Service (Moody's), and Fitch Ratings (Fitch) are relevant actors in the current financial order, being capable of interfering in the political and economic dynamics of rated countries, especially developing ones, which are more vulnerable to global financial dynamics. The central argument of this research posits that the credit rating agencies act to influence the political process and the execution of economic policy in developing countries through a coordinated issuance of sovereign ratings, reports, and press releases. This influence is made possible by the role played by S&P, Moody’s, and Fitch within the international order of financial globalization, which enables them to advance the financial market agenda while interacting with governments of developing countries. In pursuit of this objective, they frequently resort to forms of political activism that tend to mirror the political risk conditions they assess in the rated country. This argument is theoretically supported by the literature on the restrictions imposed by the context of financial globalization and financialization on the autonomy of national governments and by studies in the field of International Political Economy (IPE) on rating agencies’ behavior. The analysis is built on the case studies of Brazil and Argentina, over the first two decades of the 21st century, when both countries experienced the rise and fall of the “pink tide”, as well as relevant variations in the international environment. The research is based on sovereign ratings, reports, and press releases published by S&P, Moody's, and Fitch, as well as reactions from the governments of Brazil and Argentina to these actions, documented in newspapers, magazines, and official notes. Examining this interaction, in the light of the referred theoretical framework and the contextualization offered by the academic literature, allows for reaching conclusions aligned with the argument. Thereby, this study contributes to advancing the IPE research agenda on rating agencies, in particular, and the impacts of financial globalization and financialization on democracy, in general.