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PAC 110 – The Normative Coercion of Rating Agencies The Lowering of Argentina’s Sovereign Ranking by Moody’s

By Elie Landrieu

Translation: Lawrence Myers

Passage au crible n°110

On March 17, 2014, the rating agency Moody’s lowered the score of securities issued by the Argentine state onto financial markets to “Caa1”. It qualified the nation’s risk of defaulting on payment as “very high”. In this regard, this organism evokes the alarming drop of exchange reserves – from 52.7 billion dollars in 2011 to 27.5 billion currently – conjugated with the pursuit in parallel of “ill-adapted policies”.

Historical background
Theoretical framework

Historical background

In December 2001, Argentina declared the cessation of payment on 103 billion dollars in international obligations. Since then, the country has remained in isolation, paying few of its international obligations. It first sought to lighten its commitments. In fact, in January 2005, the government of Nestor Kirchner led its first debt restructuration plan. Then, one year later, it succeeded in paying the entirety of the sum due to the IMF (International Monetary Fund), namely 9.8 billion dollars. A second restructuration obtained by the government of Cristina Kirchner in June 2010, brought the total of private renegotiated debt to 90%. Thus in 2012, it was able to reduce its indebtedness by nearly 70% (from 166% of GDP in 2002 to 44.9%).

This state then profited from the world economic context to insure its financial autonomy. With the sudden rise of the price of agricultural material – like that of soy which represents 25% of Argentine exports – it generated large surpluses on the balance of payments and consequently grew its foreign currency reserves, primarily dollars, money in which nearly 90% of the Argentine debt is denominated. Otherwise, the rapid and vigorous economic recovery – between 7 and 9% of growth between 2003 and 2008 – led to a regular increase in tax revenues for the entire period. These resources also permitted it to cover its expenses and to progressively reimburse its debts, without resorting to financial markets.

Generally speaking, such financial empowerment allows for substantial flexibility for governments. Thanks to this, they can divert from neoliberal orthodoxy and put interventionists policies into place. Among them, let us mention social services, protectionist measures – taxes on imported goods and manufactured products – or else nationalizations (retirement funds, 2008; Aerolineas, 2011; Repsol-YPF, 2012). In parallel, the central bank engages in a rigorous inspection of the movements of capital.

However, the reversal of the world economic situation since the crises in 2008 has seriously compromised the ability for Buenos-Aires to do without the international bond market. Its financial resources are therefore mechanically reduced because of the drop in world activity. Said activity is mostly notably translated by a dip in agricultural prices, a reduction of trade surplus, a slowing of activity and a decrease in tax revenues. From that point, this situation has once again driven Argentina towards investors. But regaining their confidence supposes aligning itself to their demands, this is to say, to submit to their normative coercion.

Theoretical framework

1. Regulation by the norm. In Discipline and Punish, Foucault describes the emergence of a form of disciplinary power that, beginning at the end of the 18th century, moves away from the domain of law to join that of the norm. Still, if the first proves exterior and punitive, the second remains interiorized and leads to self-regulation by individuals. Let us underline that in the absence of all sovereign authority on the world scale, globalization comes under the same logic. In this regard, we observe the deployment of rules that emanate from specialized agencies and function according to the principles of self-control and voluntary adhesion. Such principles draw their strength from the interest of the stakeholders of globalization to integrate a club from which they could not exonerate themselves without damages.
2. Stigma as a corrective device. In this context, assigning a stigma acts as a powerful regulatory instrument. For Erving Goffman, it disqualifies and marginalizes the targeted actor, all the while reaffirming the dominant values within a given system. However, the new downgrading of Argentina’s sovereign rank casts profound discredit onto this State and contributes to ostracizing it from financial markets. It shows the hidden side of criterion on which it must necessarily align its policy – transparency, budgetary rigor, loosening of exchanges control – if it wants to access new financing on obligatory markets.


Downgrading Argentina’s rank maintains the country at the edges of financial markets. It reinforces its image of a deadbeat. In so doing, this situation compromises its relationship with all the other members of the financial sphere (IMF, private investment funds, U.S. courts, economic press) and legitimizes its placing bonds out of the bounds of markets.

The agency’s decision orders the country to conform to the neoliberal norm promoted by markets. This evaluation is combined with a comment bemoaned by certain interventionist policies, like the support for the price of energy, the interventions on change markets or else the excessiveness of public spending qualified as “unsuitable” to the situation. As a result, this authority exhorts the government to reorient its action by putting into place the neoliberal precepts based on the control of the deficit and the stabilization of money. According to the agency, all these provisions are necessary to secure the repayment of debt.

The urgent financing need that Argentina faces obliges its political leaders to consider these orders. Indeed, the flight of capital, galloping inflation and the generalized drop in activity seriously degrade its finances and make its isolation more and more unsustainable. The multiplication of confidence signals sent in the direction of financial markets these last few months, testifies to the concern of satisfying their demands. Thus, for example, the country concedes large indemnities to nationalized companies – 5 billion dollars were disbursed to the Spanish oil company Repsol – or else it reimbursed the arrears of a certain number of private creditors. Finally, it is allowing the peso to depreciate against the dollars, while it is engaging in discussions with the Paris Club, an organism that brings together public creditors. Nevertheless, in order to regain the support of financial markets, its government will make an even deeper revision of its economic policies, which Moody’s experts have clearly made known.

Ultimately, as the dependence of the State on bond markets grows, rating agencies are tightening the noose. From now on, these agencies are able to refuse the normative frameworks of finance. In the same way, they succeed in orienting the public policies of governments; the reimbursement of debt is currently imposing itself as an essential point of reference. But it must understand that the investor’s interest takes precedence over the public interest.


Foucault Michel, Surveiller et punir [Discipline and Punish], Paris, Gallimard, 1975.
Goffman Erving, Stigmate. Les usages sociaux des handicaps, Paris, Minuit, 1975.
Gaillard Norbert, « La notation souveraine », Politique étrangère, (1), 2012, pp. 53-63.
Web Publication of Moody’s March 17th decision