–Key Is To Correct Long-Term Debt Trajectory

By Yali N’Diaye

WASHINGTON (MNI) – Standard & Poor’s analysts do not believe the
U.S. government will default on it debt, the rating agency’s president
told lawmakers Wednesday, adding the key issue is to correct the
long-term trajectory of the federal debt.

Asked to comment on the potential downgrade of the U.S. sovereign
credit rating, Standard & Poor’s President Deven Sharma said, “There has
to be a credible plan to reduce the debt burden” as well the deficits in
order to maintain the ‘AAA’ rating.

Still, “Our analysts don’t believe” the U.S. would default on its
debt, he said during a House Financial Services subcommittee hearing on
‘Oversight of the Credit Rating Agencies Post Dodd-Frank.’

He stressed that changing a rating “does not mean a default.” It
just means the risk levels have increased.

Asked about his interactions with the U.S. Treasury Department,
Sharma said he hadn’t personally met with Secretary Timothy Geithner
over the past seven months, although the rating team does meet as part
as the normal process with issuers — in this case the Treasury,
Congress or Administration officials.

As the August 2 deadline looms — when Treasury is expected to
exhaust its borrowing authority — worries have grown about a default
from the U.S. government.

“The more important issue,” Sharma said, is not whether the U.S.
will default but whether the government will address the massive debt
issue through a credible long-term plan.

The government can change the trajectory of the debt by adopting
measures.

The “debt burdens and the growth rate of the debt burdens is
something that does need to be addressed for us to continue to assess
the creditworthiness of the sovereign’s commercial debt at AAA levels,”
Sharma warned.

Still he declined to comment on specific plans that have been
floated by lawmakers.

“We’re waiting to see what the final proposal is,” he said, as the
debate rages on in Washington between Democrats and Republicans. “We do
not comment on specific plans.”

July 14, when Standard & Poor’s placed the U.S. ‘AAA’ long-term and
‘A-1+’ short-term sovereign credit ratings on CreditWatch with negative
implications — it had indicated that a $4 trillion deficit reduction
over the long term was considered a credible plan.

The day before, Moody’s announced it was placing the U.S. ‘Aaa’
Government Bond Rating and related ratings on review for possible
downgrade.

Other witnesses attended the hearing, including a Moody’s
representative.

However, lawmakers focused on Sharma as Moody’s Commercial Group
Global Managing Director Michael Rowan often avoided discussion.

When Rep. Scott Garrett asked if Moody’s wanted to comment on the
issue of the U.S. sovereign debt, Rowan said, “Congressman, I’m not a
rating analyst.”

He also stated he was not a lawyer, each time proposing to
“arrange” to have the appropriate person respond to the panel’s queries,
leading one lawmaker to remark before Rowan spoke: “I recognize you said
you’re not the guy here,” with little hope for an answer.

Kroll Bond Rating Agency Chairman and CEO Jules Kroll, on the other
hand, did take his chance to express his view about sovereign ratings.
But that was not about what the U.S. rating should be.

Instead, Kroll said rating agencies lack the intellectual range and
the experience to rate sovereign credit.

“I question whether this is the job of a private sector entity to
be looking at the United States government, and frankly any government,
and reaching decisions on their levels of creditworthiness,” Kroll said.

There were also debates about the rating agencies’ expert
liability, which Colorado Public Employees Retirement Association Chief
Operating Officer and General Counsel Gregory Smith said they should be
subject to, just as lawyers or accountants are.

But both Moody’s and S&P agreed they are already accountable.

“We are accountable” to regulators and market scrutiny, Sharma
said. “We are sued,” he added, noting cases had been brought against his
agency.

** Market News International Washington Bureau: 202-371-2121 **

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