John Myers Jr, Business Reporter

The New York-based Standard & Poor's (S&P) is reviewing the way it conducts rating assessments amid a growing debate over the credibility of the operations of rating agencies.

The debate has been fuelled by the recent demise of several financial companies, the most recent being Bear Stearns, fuelled by the subprime mortgage fallout in the United States.

"We are definitely looking at the way we view certain models and the way certain parameters are included in these models," said S&P associate director Olga Kalinina, speaking at an economic forum in Kingston last Thursday.

"We have always been trans-parent with the investors and that was one of the reasons why we still consider our general business model correct. In terms of transparency ... that was never questioned."

Wrong calls

But Kalinina, who was speaking at Jamaica Money Market Brokers' (JMMB) quarterly Economix seminar at the Hilton Kingston hotel in New Kingston, admitted that S&P had made some wrong calls and "got certain ratings wrong and had to downgrade them".

"... Once again, these issues are being addressed through looking once at the models and at the inputs in the models."

The S&P executive noted that other rating agencies were con-ducting similar reviews as the sector moves to rebuild confidence.

In the meantime, Kalinina said the rating agency would maintain its stable B rating on Jamaica, at least until the new Government presents its budget of expenditure for the 2008/09 fiscal year.

Overspending

"We knew about the hurricane, we knew about some of the over-spending at the beginning of the fiscal year; these overruns have to a certain extent, been counterbalanced, but this is not enough to be able to achieve 4.5 per cent," she said, referring to the fiscal deficit to GDP.

"We knew that the growth (GDP) would have come out lower than initially expected ... so in this sense the adjustment has been implicitly incorporated into our analysis," Kalinina later told Wednesday Business.

Constraint

Dr Omar Davies, opposition spokesman on finance, speaking at the JMMB forum, said the downturn in the US economy would act as a constraint on measures that the Bruce Golding-led administration can take in the upcoming fiscal year, which starts April 1.

According to Davies, whose presentation was on the challenges and opportunities for Jamaica, rising energy and commodities prices, the weakening US economy and the weakening US dollar are the major external challenges that face the Jamaican economy.

On the domestic side, he said, rising inflation rate, high government expenditure and the increasing cost of servicing the national debt would inhibit the Government's ability to grow the economy.

He, however, stressed that prudent economic management, modernising electricity generation, identifying and developing alternative energy sources, and learning from the US subprime fallout could assist in improving the economy.

john.myers@gleanerjm.com