The steps needed to redress failures that led to the world economic crisis will require courage to conceive meaningful reform to the system of global economic governance, Vuk Jeremic, president of the UN General Assembly (GA) said here Tuesday.

Jeremic made the remarks while addressing the world body's first-ever meeting on the global credit rating system.

"I believe the United Nations could play a role in helping to establish the basis for an objective and reliable international rating system," he told the Assembly's thematic debate on the role of credit rating agencies (CRAs) in the international financial system.

In a recent report to the 193-member General Assembly, UN Secretary-General Ban Ki-moon had proposed the "creation of a United Nations observatory of credit rating service providers," to certify credit rating products and build consensus on standards for rating methodologies.

"I sincerely hope member states will seriously consider this proposal, and that today's participants will examine its merits in the time to come," Jeremic said, adding such an initiative could foster a more coherent global response to the problems associated with international financial intermediation, while ensuring that adequate investment can reach worthwhile, creditworthy development projects throughout the world.

The main objective of credit rating agencies, he said, is to " reduce informational asymmetries between lenders and borrowers, by determining the ability and willingness of potential borrowers to meet their debt servicing obligations."

In making such assessments, those agencies lower the cost of intermediation, thus supporting economic and development activities.

Yet, as the role of CRAs has expanded, criticism of the industry has been on the rise. There are concerns that they may have serious impact on financial stability.

"For example, some say that they didn't exactly foresee Mexico' s 1994 devaluation, which had profound consequences throughout Latin America, nor did they adequately assess the financial conditions that led to the Asian tumults of the late-1990s," Jeremic said.

In the latter case, some have argued that CRAs' subsequent over- reaction -- its steep downgrading of the sovereign debt of Asian countries most affected by the crisis -- only made matters worse.

Similar critiques were leveled during the recent Eurozone crisis.

Governance issues have also been raised. Some said lending and borrowing incentives, such as the "issuer-pays" model of remuneration, were distorted by the CRAs, leading to the creation of too much cheaply-available credit prior to the 2008 global economic crisis.

"Such differing points of view underscore the need for an objective review of the future role of the CRAs in the global financial system," the GA president said.

Each economic cycle is unique; and each downturn produces new surprises -- two important reasons why CRAs may remain as vulnerable to making mistakes as the rest of the financial services industry.

"Nonetheless, the status quo is hardly sustainable. It is incumbent for us to consider how one can improve the way CRAs operate, or at least discuss how to mitigate the potential consequences of lapses a CRA could make in the future," he said.

Delivering a statement on behalf of the secretary-general, Wu Hongbo, the UN under-secretary-general for economic and social affairs, said the role of credit rating agencies has expanded with

financial globalization, reflecting the growing need to determine whether, and at what cost, governments and companies can access international financial capital.

Ban has just returned from the G20 Summit in St. Petersburg, Russia, where world leaders adopted a Declaration calling on national authorities and standard-setting bodies to accelerate progress in reducing reliance on credit rating agencies.

They also called for further steps to enhance transparency and competition.

"There are several broad challenges that the international community needs to tackle in order to ensure that credit ratings make a positive contribution to the stability of the international

financial system and encourage the investment needed to promote sustainable development," the UN chief said, noting the need to correct methodological flaws, improve transparency, guard against conflicts of interest and enable developing countries to benefit more from credit ratings. Endi