Elections, Opportunism, Partisanship and Sovereign Ratings in Developing Countries

Paul M. Vaaler (), Burkhard N. Schrage and Steven A. Block ()

Review of Development Economics, 2006, vol. 10, issue 1, pages 154-170

Abstract: We empirically examine whether and how opportunistic and partisan political business cycle ("PBC") considerations explain election-period decisions by credit rating agencies ("agencies") publishing developing country sovereign risk-ratings ("ratings"). Analyses of 391 agency ratings for 19 countries holding 39 presidential elections from 1987-2000, initially suggest that elections themselves prompt rating downgrades consistent with opportunistic PBC considerations, that incumbents are all likely to implement election-period policies detrimental to post-election creditworthiness. But more refined analyses, integrating both opportunistic and partisan PBC considerations in a unified framework, suggest that election-period agency downgrades (upgrades) are more likely as right-wing (left-wing) incumbents, become more vulnerable to ouster by challengers. Together, these results underscore the importance of integrating both opportunistic and partisan PBC considerations into any explanation of election-period risk assessments of agencies and, perhaps, other private, foreign-based financial actors important to the pricing and allocation of capital for lending and investment in the developing world. Copyright © 2006 The Authors; Journal compilation © 2006 Blackwell Publishing Ltd.

Date: 2006
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