Introduction

Abstract

The credit rating agencies (CRAs) have been under criticism since the Asian crisis. At that time, they were held responsible for aggravating the liquidity crises of several Asian countries by downgrading these issuers’ ratings by as many as ten notches within 2 months. This controversy shed light on what was then a little-known activity: the rating of sovereign credit. Since 1997, many questions have arisen about sovereign ratings. How can countries be rated like any private entity? What are the criteria used by the CRAs’ analysts to assess sovereign risk? Are sovereign ratings accurate? Do the CRAs’ views simply echo those reflected in market yield spreads?