Biased rankings partially to blame for crisis

Many investment decisions in global financial markets were made based on rankings made by international rating agencies, which are recognised establishments.

In line with these rankings, some shares sky-rocketed, while others plunged, as if rating agencies have a magic wand that enables them to control stock markets all over the world.

However, the global financial crisis revealed that such rankings were custom-made to match the interests of certain financial institutions in a way that enabled them to achieve biggest share of profits.

When the crisis hit, some western companies that got high rankings collapsed within a few days, while other companies with low rankings managed to survive.

Meanwhile, rating agencies remained silent and gave no justifications for their earlier rankings.

After the crisis started, these institutions downgraded their rankings of many Gulf companies without giving sufficient justifications, which seemed to be linked to the downgrade of Gulf Cooperation Council (GCC) economies as portrayed by the western media in the past two months.

Strangely, rating agencies did not give such low rankings for companies, which were on the verge of collapse in the US and western Europe, which raises many questions about the professionalism and credibility of such agencies.

Global investors, including Arab investors, lost billions of dollars as a result of following the assessments of prestigious international agencies, which had their own agendas in directing investments one way or another.

There are also regional agencies in the Middle East and Asia, but their rankings are not usually taken into consideration, just like the outcomes of regional conferences and seminars.

Therefore, one of the positive results of the global financial crisis was uncovering many facts, which all countries should benefit from.

One of these facts is that rankings by international institutions were not based on scientific or professional grounds.

These rankings are needed to know the financial situations of investment companies across the world, to help make right investment decisions, but this must be taken from neutral and professional bodies, such as United Nations organisations.

Rankings will gain more importance with the recovery of the world economy.

So we should not repeat the mistakes of the past, such as the reliance on biased rankings.

Also, there is still room for setting up neutral regional assessment institutions within blocs such as the GCC, Opec and the Arab Monetary Fund, which have the qualified human resources and financial tools to carry out such missions.

Regretfully, these regional organisations had no role in assessing the financial positions of Arab and international listed companies, which led to almost total reliance on the evaluation of leading international institutions, which appear to be part of the global financial corruption system that caused the crisis in the first place.

Having such regional institutions will help reduce international rankings reliance.

One leading company forecast oil prices in 2009 at $200 (Dh734.6) per barrel, and later re-evaluated it to $25 per barrel, which offered a priceless service to speculators.

Forecasts may vary if new developments or events take place, but this huge gap in prices in a short period of time is not possible. The first forecast partially led to increasing oil prices, while the second one led the prices to deteriorate, despite the huge production cut by Opec.

This is not a call to ignore rankings, but to deal with them carefully.

Dr Mohammad Al Asoomi is a UAE economic writer