Analyst lambasts rating agency over Turkey note
Güncelleme Tarihi:
Hürriyet Daily News
OluÅŸturulma Tarihi: Haziran 12, 2009 00:00
ISTANBUL - As Moody’s affirms its investment grade rating on Latvia, which may well be on the brink of default, Timothy Ash of the Royal Bank of Scotland points toward the disparity between Latvia’s rating and Turkey’s ’below investment grade’ rating. ’Turkey massively outscores Latvia,’Ash says, a fact that is clearly displayed by the credit default swap market.
An emerging markets analyst criticized a credit rating agency for its affirmation of Latvia’s rating and used Turkey’s rating as his case-in-point.Â
Evaluating the affirmation of Moody’s existing "Baa3" investment grade rating on troubled Latvia, Timothy Ash, head of emerging market economics at the Royal Bank of Scotland, pointed toward the unjust position of Moody’s rating on Turkey.
"Rating agencies ... never seek to amaze me," said Ash, in a note to investors Thursday. "Latvia's Baa3 rating É puts it three notches ahead of Turkey, which is rated Ba3/BB-." With the market putting Latvia’s five-year credit default swaps at 7 percent higher than that of the United States, and Turkey at only 2.55 percent higher than that of the U.S., "someone is clearly wrong," Ash said.
"Turkey's credit fundamentals are light years away from those of Latvia, but evidently Moody's must attach a very big subjective element into its rating," Ash said. "This is the only way we can explain the three-notch rating differential."
"Turkey massively outscores Latvia," the analyst noted, reminding that the Turkish Lira floats while, Latvia's fixed exchange rate is a "key Achilles heel."
Real gross domestic product in Turkey is expected to contract by 4-5 percent this year and the economy is expected to return to growth next year, Ash added. But Latvia is expected to post "a 15-20 percent real GDP contraction in 2009, and we simply cannot see where growth is going to come from beyond that."
Latvia’s budget deficit surpasses 10 percent of its GDP in 2009 and is likely to stay around this level in 2011, while Turkey's budget deficit rose to above 6 percent this year, Ash said, adding, "This means that Turkey's net public sector debt-to-GDP ratio is at least 10 percentage points below that of Latvia."
"Latvia's Prime Minister, meanwhile, has indicated that if the International Monetary Fund does not disburse the latest credit tranche by July, the country is likely to be at risk of default," the analyst continued. "It’s remarkable, on the basis of this comment alone, that Moody's still keeps Latvia's investment grade rating."
Evaluating the affirmation of Moody’s existing "Baa3" investment grade rating on troubled Latvia, Timothy Ash, head of emerging market economics at the Royal Bank of Scotland, pointed toward the unjust position of Moody’s rating on Turkey.
"Rating agencies ... never seek to amaze me," said Ash, in a note to investors Thursday. "Latvia's Baa3 rating É puts it three notches ahead of Turkey, which is rated Ba3/BB-." With the market putting Latvia’s five-year credit default swaps at 7 percent higher than that of the United States, and Turkey at only 2.55 percent higher than that of the U.S., "someone is clearly wrong," Ash said.
"Turkey's credit fundamentals are light years away from those of Latvia, but evidently Moody's must attach a very big subjective element into its rating," Ash said. "This is the only way we can explain the three-notch rating differential."
"Turkey massively outscores Latvia," the analyst noted, reminding that the Turkish Lira floats while, Latvia's fixed exchange rate is a "key Achilles heel."
Real gross domestic product in Turkey is expected to contract by 4-5 percent this year and the economy is expected to return to growth next year, Ash added. But Latvia is expected to post "a 15-20 percent real GDP contraction in 2009, and we simply cannot see where growth is going to come from beyond that."
Latvia’s budget deficit surpasses 10 percent of its GDP in 2009 and is likely to stay around this level in 2011, while Turkey's budget deficit rose to above 6 percent this year, Ash said, adding, "This means that Turkey's net public sector debt-to-GDP ratio is at least 10 percentage points below that of Latvia."
"Latvia's Prime Minister, meanwhile, has indicated that if the International Monetary Fund does not disburse the latest credit tranche by July, the country is likely to be at risk of default," the analyst continued. "It’s remarkable, on the basis of this comment alone, that Moody's still keeps Latvia's investment grade rating."