Ratings removed from reality

Lebanon is an anomaly in many ways, and no less so when it comes to international credit ratings. While most of the world still depends on Fitch, Standard & Poor’s (S&P) and Moody’s to grade investment risk — even after their errors in the lead up to the global financial crisis — the reports of these ratings agencies simply do not carry the same weight in Lebanon. Take, for example, S&P’s downgrade of the United States’ credit rating from AAA to AA+ last summer; the US equity index S&P500 fell 6.66 percent to 1,119 points the next day of trading. S&P’s recent lowering of its outlook for Lebanon, however, followed by a Moody’s downgrade of three Lebanese banks, resulted in… nothing. There was no perceptible impact in the markets, with Lebanon’s credit default swap (CDS) spread — a proxy for default risk — remaining stable after both announcements, and shares