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rated by all three companies. Thus, there are 140 countries rated by at least one
firm, but most of them were rated by all three firms. The ratings are arranged as
an ordered set (Moody's, S&P, Fitch). We then take the average of three ratings
for each country. If one or two ratings are missing, we take the average of two
or one ratings. For example, in the case of Taiwan, the ratings are (Aa3, AA-,
A+) = (4, 4, 5). Using the conversion table in Appendix C, the average is 4.3.
In case of Botswana, the ratings are (A2, A-, NR) = (6, 7, NR), where Fitch's
rating is not reported (NR). Thus we take the first two numbers and obtain their
average, which is 6.5 (this means that the best estimate of NR is 6.5). In the
case of Vietnam, we have (NR, NR, BB-) = (NR, NR, 13). Thus, its average is 13
(this means that we assign 13 to both NRs). Using these estimations, Figure 7
compiles the frequency distribution of the 140 average ratings of the three credit
rating companies.
We also rank the averages in ascending order from 1 to 140. If several
countries have the same average, we give the same rank at its first occurrence.
Figure 7 shows that Germany (1.0, #1) and Singapore (1.0, #1) and nine other
countries are in class 1, rated as prime. Class 2 includes USA (1.3, #12), Hong
Kong (1,7, #13), the United Kingdom (2.7, #17), France (3.0, #18), South Korea
(3.7, #23) and seven other countries. They are rated as High Grade. China (4.3,
#24), Taiwan (4.3, #24), Japan (5.3, #29) and Malaysia (7.0, #35) and 12 other
countries are rated as the Upper Medium Grade, etc. Class 7 has 9 countries,
including Greece, Ukraine and Venezuela (all three are at 17.7, #133). Class 9
has only one country, the Republic of Congo, (22.0, #140), rated as "In default
with little prospect of recovery."
As shown in Figure 7, Taiwan is at the upper end of class 3 due to Fitch's
grade of 5 (otherwise, Taiwan can be in class 2, the same as Hong Kong and
Korea), slightly lower than the other three Asian NIEs, but higher than all the
ASEAN-4. While the sovereign credit rating is mainly used for the reference of
105
Taiwan Economic Forum
Volume 14, Number 4
