Credit Rating is key for Economic and Financial Development

The latest report by the World Economic Forum ranks Haiti 141 out of 142 countries, beating only Chad as a competitive country.  Some argue that Haiti is paying the price for being a French colony since many French colonies do not rank well in global rankings because of the French legal system. One of the pillars for competitiveness is financial market development that channels the country’s savings into long term financial instruments that can finance not only companies, but the government and even municipalities. For decentralization to occur, Haitian laws will have to change to enable rural cities or regions to become more financially independent as far as tax receipts and expenditures. Such a market also enables the same issuers (public and private) to raise capital from local and international investors, whether in the Caribbean or throughout the world.

There is a flow of capital around the world that seeks return or a certain level of risk. Granted that some markets in Central America and the Caribbean suffer from a lack of liquidity, they are issuing debt locally and internationally. According to the report, economies require financial markets that are sophisticated where capital reaches businesses through loans, securities exchanges, venture capital and private equity. This enables companies that are managed efficiently and growing at a rate superior to the industry to obtain capital even though they are not politically connected.

Obtaining a credit requires the government to contact the rating agencies to analyze the country’s risk,  tax receipts, and  the capability of paying back its debt. According to John Chambers, sovereign analyst with Standard & Poors, Haiti can obtain a rating in 6 weeks after a team is sent to the country. “Many countries receiving aid have credit ratings such as Benin, and Rwanda” noted Chambers. Other countries that have had debt write offs have gone to market after. This would force the country to operate like a business, indirectly eliminate corruption and reduce unnecessary expenses. The country’s focus will now shift on positive trade balance, sound monetary and fiscal polity, and control its debt to GDP ratio. As far as liquidity, the country will have to create institutional investors and privatize the pension fund system to create demand in the secondary market.