Triples all round in the Isle of Man as Moody’s say they’re good for anything

Posted on

It must be triples all round in the Isle of Man as Moody's, the debt rating  agency, issue an announcement that says:

London, 11 November 2010 -- Moody's Investors Service has today confirmed the Government of the Isle of Man (IOM) Aaa issuer and debt ratings. The outlook is stable. This confirmation concludes Moody's review for possible downgrade implemented on 21 October 2009.

Why was there that review in October 2009 ? Well, according to the Isle of Man some rascal called Richard Murphy engineered the loss of 25% of the Isle of Man's income. It is true for which I'm not sure I deserve the whole credit. I think HM Treasury had something to do with it as well. But let's accept the official Douglas line and and note that Moody’s go on to say:

"Today's rating announcement reflects the positive response of the government in meeting up to 25% cuts in the Isle's governmental revenues, caused by revised VAT sharing agreement with the UK, and the demonstrated flexibility of the island's budget in adapting rapidly to a changing environment. The tone of international debate with respect to entities regarded as 'off-shore' economies, which represents a threat to the Isle of Man business model, seems recently to have eased, although it could emerge again in the future", explains Thomas Amenta, Senior Vice President in Moody's Sub-Sovereign Group.

Ahhhh. So there we have it. Richard Murphy has gone away for the moment, but may be back soon.

And, as Moody’s say:

International pressures on the structure of the IOM tax system have not materialised, and the IOM has continued its pro-active efforts to meet international standards in financial regulation and information sharing for tax purposes and to engage on issues of tax policy. Whilst the tone of discussion with the IOM's trading partners has mitigated over the past year, national budgetary pressures in the UK, Europe and North America are likely to continue to raise the profile of -- and the need to effectively manage -- these issues above that of pre-crisis levels.

You bet . As every country realises that it is debt reduction programme is failing, the demand for extra tax will become enormous. Wait and see what happens then to the Isle of Man.

The amusing justification for the AAA rating will then look very silly:

The key drivers of the rating are the maintenance of highest quality financial profile, with tight control of costs and strong reserves, and the solid performance of the IOM's economy.

First, the custom have not yet had any real impact on the Isle of Man. so how do they know that costs are under control?

Second, the figures on growth in the economy are largely the consequence of restructuring of statistics. There is no clear evidence of any real growth - indeed despite the statistical shenanigans gross national income has declined.

And most amusingly double - there is no debt in the Isle of Man at present, so why the importance of rating? What are they buying it for?  Wait until they have to borrow. Then the rating will change!

And do remember, Moody’s were people who rated sub-prime debt as AAA - just like they do the Isle of Man.