More magic puddings

Responding to my piece on PPPs in last Thursday’s Fin, Dennis O’Neill of the Australian Council for Infrastructure Development concedes that the obligations associated with PPP are similar to those of sovereign debt, but then says that governments prefer PPPs because they are unwilling to take on additional debt for fear of jeopardising AAA credit ratings.*This makes about as much sense as saying that people who are worried about the size of their mortgage should borrow on their credit cards instead.

At lower credit ratings you could make an argument about transfers of systemic risk (very tenuous in my opinion), but the only question that should affect a AAA rating is the ratio of total obligations (including debt and PPP contractual obligations) to income.

Despite his protestations, O’Neill belongs among the believers in the magic pudding theory of private finance for infrastructure.

* [the letter is not on the Fin website yet, I’ll try to post it later].