Saturday, 16 January 2016

S&P Ratings Cut Undermines Democracy in Poland

The credit rating agency Standard and Poor's (S&P) has cut its rating for Poland from A minius to tripple BBB plus, citing that another cut could be made in the future. This is the first such downgrade that has been made for Poland since 2007 and immediately instigated a fall in the value of its currency. 

S&P's justification for this move is purely political and not based on a judgement of the country's economy. It states that 

The downgrade reflects our view that Poland’s system of institutional checks and balances has been eroded significantly..Poland’s new government has initiated various legislative measures that we consider weaken the independence and effectiveness of key institutions, as reflected in our institutional assessment...These measures  go beyond what we had anticipated regarding policy changes from the general election

The current PiS government is introducing policies that are moving the country in a more authoritarian direction. However, they have not dismantled the democratic system - there has been no coup d'etat and they can still be voted out of power. These policies should not be the concern of international financial institutions and banks. This decision is openly political and a direct attack on the soverignty of the country. 

The outcome of the downgrade will be to worsen the living standards of sections of the population. It immediately sent the currency into a downward spiral, reaching its lowest level in relation to the Euro for over four years. This will  hit the country's struggling middle class the hardest, who are more likely to travel abroad on holiday, buy imported foreign products and who often hold credits in foreign currencies such as Swiss Francs and Euros. It will also place considerable pressure on the government's budget and the new government's ability to service its debt. 

As the justification for S&P's decision was purely political, then one can only assume that they hope it will also have a political impact in the country and undermine the present government. It will further fuel the atmosphere of division and conflict in the country. The country's burgeoning middle class, many of whom are opposed to the PiS government, will see this as further proof of the failings of the present administration. This social class and its liberal representatives in parliament are now some of the most radical opponents of PiS and as their standards of living fall so this radicalism and anger will increase. 

On the other hand, PiS will use the decision of S&P to further its nationalist rhetoric. It will be able to show how international banks and financial institutions are plotting to overthrow the Polish government and block the democratic will of the nation. This will not help strengthen democracy in Poland but will rather rachet up nationalist rhetoric and widen political divisions and may well in fact strengthen the position of the government. 

We should also remember that S&P has its own dubious record. It has regularly been accussed of irregularities and last year had to pay almost $1.4bln to settle a lawsuit from the US justice department that claimed S&P had defauded investors by issuing inflated ratings in the years leading up to the global financial crisis.  Those in glass houses....

Those opposing the authoritarian policies of the present government should also state their opposition to this undemocratic intervention by the rating agency. Any moves that drive down the standard of living of the population (as EU sanctions would for example) will not help the political situation in Poland. Unfortunately, the leader of the main liberal opposition in parliament, Ryszard Petru, has predictably come out in support of this act. He has stated in a tweet that as the present government has broken the constitution and the democratic rules of the game, then other rules may no longer apply - hence the downgrade. 

The common principle that 'two wrongs do not make a right' is unfortunately being too often forgotton in Polish politics at the moment. 

1 comment:

  1. A classic example of financial bullying. The entire debacle about the new "nationalist Polish govt" is a farce. As you've mentioned, S&P's premature downgrade is anything but encouraging of democracy and will result in worse economic signals and ultimately, more nationalistic reaction. It is an effort by the corrupted wall street tycoons to divide and conquer (or simply destroy, as they've done to many countries recently) in their incessant effort to squeeze profits out of a waning middle class.


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