Tag: Standard & Poor’s

In these difficult economic times, with disappointing jobs figures in the US and stagnation in the eurozone, the growth story of Turkey tells is a coherent one – or it would be, if all the country’s government signed up to it.

Yes, the 2.2 per cent increase in GDP logged last year was a far cry from the 8.8 per cent of 2011, but, as Ali Babacan, the country’s deputy prime minister and economic supremo, has argued, the economy still shines in comparison with Europe. Last year, he recently noted, it still had the lowest inflation in 44 years, a 1m rise in employment, near-zero real interest rates and improved credit ratings.

But not all his colleagues have exhibited such positive thinking. Zafer Caglayan, the economy minister, has spoken about Turkey’s central bank’s monetary policy as a “bitter brake” on growth that would otherwise have been considerably more.

So the question arises: for whom is Caglayan is speaking? For the Turkish businessmen he represented in his previous incarnation as head of Ankara’s Chamber of Industry, distressed at a real economy that sometimes seems markedly more sluggish than the official figures would suggest? Or for Recep Tayyip Erdogan, the most powerful prime minister Turkey has seen for very many years?

Later this week, Erdogan himself appeared to provide the answer.

Speaking at a ceremony marking the rebranding of Istanbul Stock Exchange as Borsa Istanbul, he too noted that Turkey’s growth last year was much higher than both the US and the EU – and surveyed economic progress during his decade in office, remarking on how interest rates have declined in that time from some 63 per cent to about 6 per cent.

“It is still high,” he said of the current rate. “I hope we will lift this pressure on consumers by reducing it further.”

In his comments, Erdogan acknowledged Standard & Poor’s recent upgrade of Turkish debt to the cusp of investment grade status – but didn’t hide continuing tensions with the ratings agencies. “They are upgrading Turkey unwillingly,” he said. “If it was up to them, they would even downgrade us.”

The prime minister also made clear that he wanted to see the central bank move to a new financial centre in Istanbul, along with state banks and regulators – but central bank officials have deep reservations about carrying out such a move.

Part of the Turkish story advanced by the country’s top economic officials is the value of having a truly independent central bank. After his comments this week, Erdogan’s thoughts on the topic are all the more intriguing.

via What’s the script for Turkey? doing nicely, or could do better? | beyondbrics.

By Emre Peker

ISTANBUL–Turkey lamented the purported unfairness of ratings agencies that trapped the country in junk status for many years while the government limited its criticism to verbal outbursts as it courted foreign investors. Not anymore.

Recently armed with its first investment-grade rating in almost two decades and seeing record levels of investor demand for Turkish stocks and bonds, Prime Minister Recep Tayyip Erdogan’s government did what Ankara wanted all along: dump Standard & Poor’s as a sovereign ratings provider to show the world who’s the boss.

“We are converting our issuer credit ratings on Turkey to ‘unsolicited’ as we no longer have a rating agreement with this sovereign,” S&P said Monday in a statement. The firm said it will continue to rate Turkey “because we believe there is significant market interest in this unsolicited rating.”

If governments could pick favorites and play ratings firms against each other, Turkey would be the example du jour.

Since May, Ankara has been raging against S&P, which at two steps below investment grade has the lowest rating on Turkey among the three major agencies. At the time, the New York-based firm cut its outlook on Turkey’s BB rating to stable from positive, citing headwinds in efforts to rebalance the country’s economy.

That drew a sharp rebuke from Turkey’s strong-willed prime minister and other officials including soft-spoken and internationally respected Finance Minister Mehmet Simsek. The main critique was that S&P’s decision was politically motivated and had nothing to do with Ankara’s ability to repay debt.

“The cost of this will be a statement from us that says ‘I do not recognize you as a credit institution,’” Mr. Erdogan burst out after S&P’s move last year. And while the premier’s proposal to establish a Turkish credit-rating firm has yet to flourish, the government did do away with S&P.

In the lead up to Ankara’s decision against renewing its agreement with S&P, Turkey kept attracting investors as expansive central bank policies worldwide pumped cheap money into the global economy. The steady cash inflow helped Ankara overcome speculation that it was in yet another boom-and-bust cycle.

In 2012, Turkey managed a soft landing of its $800 billion economy as officials curbed credit-fueled domestic demand and boosted exports. That helped prop up the lira, slow inflation to 6.2% from 11.1%, cut down the current-account deficit by more than $20 billion to 6.5% of gross domestic product, and expand the economy by 3% on the back of record exports.

As it crystallized that Turkey would avoid an economic hard-landing, and despite its ongoing dependence on external funding for economic growth, the government snatched the lowest investment-grade status of BBB- from Fitch Ratings in November.

Buoyed by resilient economic growth that’s forecast to rise to 4% this year–higher than emerging market peers including Poland and South Africa, according to the World Bank–Turkey now has what it always coveted: economic weight to throw around.

Ankara’s first act came last week, when the Treasury flexed its muscle to replace S&P with Fitch as one of the two major agencies that will rate its debt in 2013. Moody’s Investors Service kept its role as the second firm amid widespread speculation that it will raise Turkey’s rating by one notch to investment grade sometime this year.

“Fitch has a full investment grade rating now for Turkey so I guess is flavor of the month,” said Tim Ash, head of emerging market research at Standard Bank Plc in London. “The government is also probably sending a non-too-disguised message that it sets little store or value in the S&P rating at BB–it has long argued that the current junk bond rating is unjustified and unfair, and we would agree.”

Recep Tayyip Erdogan,

Standard & Poor’s,

Turkey

via Turkey to Ratings Firms: Who’s The Boss Now? – Emerging Europe Real Time – WSJ.

Standard & Poor’s said on Monday it would no longer offer a full rating service for Turkey, ditching much of its work with the economically booming country eight months after a spat over a negative report.

The credit ratings agency said it had failed to reach a deal with Turkey and would in future only issue an “unsolicited” assessment – meaning that it is not paid by the country to provide cover but does so anyway to meet investors’ needs.

The country responded angrily last May when S&P cut the outlook on its BB sovereign credit rating to stable from positive. Prime Minister Tayyip Erdogan warned Ankara may no longer “recognize” the agency, calling its decision “ideological.”

“We are converting our issuer credit ratings on Turkey to “unsolicited” as we no longer have a rating agreement with this sovereign,” S&P said in a statement.

“We will nonetheless continue to rate Turkey on an unsolicited basis because we believe that we have access to sufficient public information of reliable quality to support our analysis … and because we believe there is significant market interest in this unsolicited rating.”

S&P rates Turkey at BB, two rungs below investment grade. Fitch has raised it to investment grade at BBB– and Moody’s just below investment grade at Ba1.

“The government is … probably sending a non-too-disguised message that it sets little store in the S&P rating at BB,” said Timothy Ash, head of emerging markets research at Standard Bank.

“It has long argued that the current junk bond rating is unjustified and unfair, and we would agree,” he said.

S&P says that less than 10 per cent of its sovereign ratings are “unsolicited,” but these include the United States and Britain.

It was the reasoning behind S&P’s move last May that appeared to touch a raw nerve.

The agency cited Turkey’s huge current-account deficit – its negative balance of trade in good and services, earnings on foreign investments and cash transfers such as workers’ remittances – as well as the heavy inflows of foreign capital which the country needs to pay for that gap.

While the inflows continue, Turkey can live comfortably with its deficit. But if they dry up, the country could be in for “external shocks” such as a plunge of its currency which would push up inflation and interest rates, S&P warned at the time.

Turkey was Europe’s fastest growing economy in 2011 but its external deficit widened to almost 10 per cent of national output at the same time and the deficit remains the country’s main economic weakness even as growth slowed last year.

The deficit widened to $4.48-billion (U.S.) in November, the latest month for which data is available, from $1.96-billion a month earlier, although it came in just below a Reuters poll forecast for a deficit of $4.8-billion.

Turkish growth remains robust compared with debt-choked Europe and much of the Middle East, and state finances are strong. The government is aiming for a budget deficit of just 2.2 per cent of national output this year and state debt is seen at around 35 per cent of GDP, well below most euro zone states.

“Most people will just ignore this,” Alex Perjassy, senior emerging markets fixed income strategist at AllianceBernstein, said of the end of the ratings deal with S&P.

“Most people have ignored sovereign ratings on Turkey in the past few years given the ratings have not reflected Turkish fundamentals for some time.”

via Turkey and S&P fail to reach deal after spat over ‘junk bond’ rating – The Globe and Mail.