Wilbur Ross: Moody's Downgrade of Ireland Was Reckless

Thursday, 14 Jul 2011 01:13 PM

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Moody's decision to downgrade Ireland's credit ratings to junk status was a reckless act that will cause problems rather than warn investors of impending ones, says billionaire investor Wilbur Ross.

Moody's Investors Service downgraded Ireland's foreign- and local-currency government bond ratings to Ba1 from Baa3.

The outlook on the ratings stands at negative.

Moody's is warning that Ireland won't be able to raise money in the bond market until 2013, when its bailout loans expire.

wilburrossgetty200.jpg
Wilbur Ross
(Getty Images photo)
Ross says the agency is overlooking steps taken to improve its finances.

"Ireland is the one country that really has taken the medicine. They cut the total costs of their civil service by 13 percent, they cut out federal capital expenditures and they cut out a lot of social service payments," Ross tells CNBC.

"They are really facing up to the problem, and they don't need the structural reform of their labor markets that most of the Club Med countries need."

Ross was referring to the Greece and Italy, which are experiencing massive government debt problems and bloated public sectors.

Ireland bailed out its banks via a $122 billion loan from the European Union and the International Monetary Fund, but Moody's says more help may be needed.

"The key driver for (the) rating action is the growing possibility that following the end of the current EU/IMF support program at year-end 2013, Ireland is likely to need further rounds of official financing before it can return to the private market, and the increasing possibility that private sector creditor participation will be required as a precondition for such additional support, in line with recent EU government proposals," Moody's says in a statement.

Ross says that Moody's is being unfair.

"Here you have the one good student in the school doing the right thing and now Moody's downgrades them on the theory that in 2013, they may not be able to access the public market. Well if Moody's downgrades enough people recklessly, nobody will be able to access the public market in 2013."

The agency is also failing to recognize that on top of the steps Ireland took to make improves its financial health, fundamentals set it apart from other European economies.

"What Ireland has still intact are all the things that had previously made it the miracle of Europe: the lowest tax rate in Europe, it's the one English-speaking country in Europe that uses the euro currency, a very young, highly educated work force," Ross says.

The Irish government, meanwhile, expressed its disappointment.

"This is a disappointing development and it is completely at odds with the recent views of other rating agencies," the finance ministry says in a statement, Reuters reports.

"We are doing all that we can to put our house in order and the progress that we are making is there for all to see."

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