The Associated Press August 11, 2011, 5:04AM ET

US joins minnows NZ, Belgium in AA+ credit club

When Standard & Poor's downgraded the debt of the United States last week, the U.S. joined just two other countries with an AA+ rating -- Belgium and New Zealand.

The rating agency's move put U.S. creditworthiness below 18 AAA-ranked countries and territories as diverse as Australia and Liechtenstein. For the U.S. to be ranked alongside two minnows in world affairs -- whose combined population is less than Florida's -- prompted considerable derision at home. The country had gone from "AAA" to "LOL," one talkshow host quipped.

Some New Zealanders feel they should be the ones taking offense.

Known for its stunning landscapes, sauvignon blanc wines, and producing the blockbuster Lord of The Rings film trilogy, New Zealand was plunged into recession by the U.S. mortgage crisis in 2008 but emerged in relatively healthy financial shape.

Unemployment is 6.5 percent, compared with 9.1 percent in the U.S.

Government debt is equal to about a fifth of the economy compared with nearly 75 percent in the U.S.

House prices, meanwhile, have fallen just a few percent from their peak and the government is predicting its books will be back in the black by 2015.

The situation is more mixed in Belgium. Unemployment is running at 7.4 percent but Belgium's high level of public debt -- equal to 97 percent of gross domestic product -- has caused concern and forced up interest rates on Belgian bonds.

In New Zealand, political stability has served the country well. The hottest political topics this week? The question of whether the government should hold an inquiry into the price of milk -- and whether the official Adidas jerseys commemorating the upcoming Rugby World Cup are too expensive.

But if Americans think the stalemate between Republicans and Democrats is bad, they might find some solace in Belgium's dispute between the Dutch-speaking Flemings and the French-speaking Walloons. Things have gotten so gridlocked that there hasn't been a proper government for 14 months, threatening the country's long-term survival as a sovereign nation.

Of course, any economic comparison has its limits. The U.S. remains the world's largest economy and is home to global leaders in sectors from social media to advanced weaponry.

New Zealand, with a population of 4.4 million people, 33 million sheep and 10 million cows, has a much narrower economy based on agriculture.

Yet its handling of the recent economic downturn could prove instructive.

"New Zealand has a very strong debt-servicing ethic, and we don't see that in the U.S." said Kyran Curry, who analyzes Pacific economies for the S&P ratings agency. "New Zealand is also better addressing the issue of an aging population."

Curry said a major factor in the U.S. downgrade is the political paralysis in Congress, which has cast a cloud over the country's future willingness to meet its financial obligations.

However, Curry pointed out that America does have the advantage of the U.S. dollar being the world's reserve currency -- which dominates trade in goods and commodities and is used by central banks to store national wealth.

And, he added, the picture in New Zealand is not all positive.

"In a biologically-based economy, you can't just crank out another cow overnight," he said. "It's a structural weakness as well as a strength."

Bill English, New Zealand's finance minister, sees only upside to an agricultural economy.

"The fact is that we are good at this and the world has changed, making it more relevant and valuable than it was," he said. "We are now able to sell more products into fast-growing markets that want them."

Still, the country has high levels of private debt held by overseas banks -- a concern to the ratings agencies -- and continues to suffer the aftermath of the Feb. 22 Christchurch earthquake which killed 181 people. The rebuilding costs are estimated at more than $15 billion -- about 8 percent of GDP.

In Belgium, government debt peaked in 1993 at about 135 percent of GDP before falling to 84 percent in 2007 thanks to some tough budgeting. The last recession and bank bailouts have pushed debt back up again but Belgium is weathering the European debt crisis better than many of its neighbors.

Citing continuing uncertainties in the U.S., New Zealand and Belgium economies, S&P has put all three countries on a negative watch, meaning downgrades are possible.

The U.S. continues to enjoy top rankings from the other two major ratings agencies, Moody's Investors Service and Fitch Ratings. Fitch and Moody's both rank Belgium lower, while New Zealand gets one top ranking, from Moody's.

The furor surrounding the U.S. downgrade by S&P has forced the agency to do some explaining. According to S&P's Curry, there's little difference between an AA+ and an AAA ranking anyway.

"It's all just degrees of excellence," he said.

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Associated Press business writer Gabriele Steinhauser in Brussels contributed.


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