Turkey’s low sovereign rating raises the tension
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Hürriyet Daily News
OluÅŸturulma Tarihi: Haziran 19, 2009 09:23
ISTANBUL - A top representative of an international credit ratings agency defends decisions to keep Turkey’s sovereign rating below investment grade despite the expectations of an upgrade, saying economists share their negative views on Turkey ’behind closed doors.’ An analyst in London, who recently criticized rating agencies over Turkey, replies harshly.
According to the general manager of a leading credit rating agency, Turkey’s credit rating is low because economists make negative assessments of the Turkish economy during "behind-closed-doors" meetings, business daily Referans reported Thursday. Economists’ views are incorporated into agency evaluations of a country and they have an impact on ratings evaluations, Fitch Turkey’s AyÅŸe Botan Berker said.       Â
Rating agencies have been under fire for not raising the credit rating of Turkey, which is among the countries least affected by the global crisis, while the deterioration of the economic situation in higher-rated countries continues. Turkey's credit rating currently stands at BB- according to Fitch and Standard Poor's, which is equivalent to Ba3 on Moody's scale, two notches below investment grade.
Political developments are as important as economic indicators in credit rating measurements, Berker said. "We had experienced the most volatile period in politics. Moreover, on a couple of occasions something happened just as we were considering bringing the rating upgrade issue to the agenda," she said, referring to the tense period between the Turkish military and government in 2007.
When Parliament set to elect the new president in spring of 2007, the General Staff issued a harsh statement on its Web site to warn against increasing anti-secular trends in the country, an incident referred to as the "e-memorandum."
But still the Turkish government had expected a rating upgrade after the general elections in 2007 when the ruling Justice and Development Party, or AKP, won in a landslide, assuring the continuation of a strong central government.
On the financial side, Berker said, they have been monitoring developments on the current account deficit, a key risk factor for the economy, and the volatility of the growth rate, which is considered a negative factor.
Berker said the decline in the current account deficit was caused by conjectural factors and not by structural arrangements. The International Monetary Fund expects Turkey's current account deficit to shrink to $6.6 billion in 2009 from $41.4 billion in 2008. The deficit contracted to $1.2 billion in April this year, from $5.2 billion in April 2007.
"We expect the economy to grow by 2.5 percent in 2009 and stay below the average rate of countries [with the same credit rating with Turkey]," she said.
As Berker criticized economists and analysts, recent notes to investors suggest Turkey's credit rating should be higher when the economic developments in countries with the same or higher rating are considered.
Last week, Timothy Ash of the Royal Bank of Scotland pointed at the disparity between Turkey’s "below investment grade" rating and the "investment grade" rating of Latvia, a country whose economy has been ravaged by the global financial downturn.
In a separate note, Ash said Turkey rated on par with Gabon and Nigeria and questioned the reasons why the country’s sovereign rating is two notches below Egypt.
Speaking to the Hürriyet Daily News & Economic Review, Ash rejected Berker’s criticism, saying analysts could not make any different assessment behind closed doors than they do in public. "There are rules from both the U.S. Securities and Exchange Commission and the Financial Services Authority in Britain that govern what we can say and write," he said.
Rating agencies have been under fire for not raising the credit rating of Turkey, which is among the countries least affected by the global crisis, while the deterioration of the economic situation in higher-rated countries continues. Turkey's credit rating currently stands at BB- according to Fitch and Standard Poor's, which is equivalent to Ba3 on Moody's scale, two notches below investment grade.
Political developments are as important as economic indicators in credit rating measurements, Berker said. "We had experienced the most volatile period in politics. Moreover, on a couple of occasions something happened just as we were considering bringing the rating upgrade issue to the agenda," she said, referring to the tense period between the Turkish military and government in 2007.
When Parliament set to elect the new president in spring of 2007, the General Staff issued a harsh statement on its Web site to warn against increasing anti-secular trends in the country, an incident referred to as the "e-memorandum."
But still the Turkish government had expected a rating upgrade after the general elections in 2007 when the ruling Justice and Development Party, or AKP, won in a landslide, assuring the continuation of a strong central government.
On the financial side, Berker said, they have been monitoring developments on the current account deficit, a key risk factor for the economy, and the volatility of the growth rate, which is considered a negative factor.
Berker said the decline in the current account deficit was caused by conjectural factors and not by structural arrangements. The International Monetary Fund expects Turkey's current account deficit to shrink to $6.6 billion in 2009 from $41.4 billion in 2008. The deficit contracted to $1.2 billion in April this year, from $5.2 billion in April 2007.
"We expect the economy to grow by 2.5 percent in 2009 and stay below the average rate of countries [with the same credit rating with Turkey]," she said.
As Berker criticized economists and analysts, recent notes to investors suggest Turkey's credit rating should be higher when the economic developments in countries with the same or higher rating are considered.
Last week, Timothy Ash of the Royal Bank of Scotland pointed at the disparity between Turkey’s "below investment grade" rating and the "investment grade" rating of Latvia, a country whose economy has been ravaged by the global financial downturn.
In a separate note, Ash said Turkey rated on par with Gabon and Nigeria and questioned the reasons why the country’s sovereign rating is two notches below Egypt.
Speaking to the Hürriyet Daily News & Economic Review, Ash rejected Berker’s criticism, saying analysts could not make any different assessment behind closed doors than they do in public. "There are rules from both the U.S. Securities and Exchange Commission and the Financial Services Authority in Britain that govern what we can say and write," he said.