Developing the Financial Infrastructure in an Emerging Market Economy

This chapter examines the role of credit rating agencies in capital-market development and on the conduct of monetary policy. Rating agencies in developed capital markets provide quality certification to issuers, while their role in emerging capital markets is mainly to enhance informational efficiency in the marketplace. The authors highlight some indirect macroeconomic consequences from the presence of a rating agency, including its monetary surveillance role and the positive implications for foreign investments. The chapter also outlines the conditions for an effective rating agency in an emerging market economy, discusses the benefits of security ratings to constituencies, and proposes a scenario for a rating agency’s design. The collaboration of regulators, central bankers, and issuers is especially critical to the success of a rating agency.