Tag: Standard & Poor’s

Turkey and the Raters: The Love Story Continues

By Joe Parkinson

It’s no secret that there’s little love lost between Turkey’s policy makers and ratings firms.

Turkish cabinet ministers and central-bank officials have long bemoaned raters’ stance on Europe’s fastest-growing economy, stressing that Turkey’s credit rating – which all three big firms rank below investment grade – is too low. Ankara has repeatedly fulminated against Fitch, Moody’s and Standard & Poor’s, hurling accusations of an anti-Turkish bias in their sovereign-ratings analysis. After Fitch lowered Turkey’s outlook in November, Economy Minister Zafer Caglayan said the company couldn’t be independent since it was 60% owned by French investors.

But relations appear to have hit a new low this week. On Tuesday, S&P cut Turkey’s outlook to stable from positive, saying risks to its creditworthiness have risen as a result of high debt and worsening terms of trade as demand for its exports weakens.

“Less-buoyant external demand and worsening terms of trade have, in our view, made economic rebalancing more difficult, and have increased the risks to Turkey’s creditworthiness given its high external debt and the state budget’s reliance on indirect tax revenues,” S&P said in a statement.

Many economists said the outlook change was partly spurred by growing fears over Turkey’s current-account deficit, which exceeds 10% of gross domestic product.

But Turkey’s cabinet reacted furiously, fanning out across the airwaves to decry the decision. On Thursday, Prime Minister Recep Tayyip Erdogan offered the latest salvo, accusing S&P of making an “ideological decision” and threatening to withdraw Turkey’s recognition of the agency as a legitimate credit institution.

“If necessary I will say, I do not recognize you as a credit institution,” Mr. Erdogan said in a speech in Istanbul. “Why are you reducing the credit note of a country which has been on the positive side for a while,” he added, in reference to S&P’s Wednesday upgrade of Greece’s credit rating to triple-C after Athens completed a major debt writedown with private creditors. S&P rates Turkey at double-B, two notches below investment grade.

The Prime Minister’s comments came just hours after Finance Minister Mehmet Simsek said the data S&P used to make its decision were outdated. Deputy Prime Minister Bulent Arinc said late Wednesday that S&P’s decision was “unfair and inappropriate,” adding that it was based on inaccurate data.

Turkish policy makers point to recent growth numbers — the economy expanded 8.5% last year; the second fastest expansion of any Group of 20 economy bar China — as evidence that Turkish fundamentals are good and the country’s rating should be higher.

Some economists agree. “I think many in the market would have a lot of sympathy for Erdogan and Turkey. The rating agencies have consistently got Turkey wrong, and it is two to three notches mis-rated by any fair assessment,” said Royal Bank of Scotland economist Tim Ash, a known skeptic of ratings companies’ views of Turkey’s creditworthiness. “It should be investment-grade already.”

Credit-default swap markets also suggest Turkey should have a higher rating; they have traded at levels that would imply a rating above investment grade for months, economists say.

Still, although some market players have argued that Turkish fundamentals warrant a higher credit rating, markets also have been repeatedly unnerved by the rapid expansion of the current-account deficit and concerns over the central bank’s unorthodox monetary policy. That external financing weakness makes Turkey vulnerable to a hard landing should the global economy hit another bump in the road, causing external financing to dry up.

Another concern over Turkey’s economy – inflation – was in focus on Thursday, as new data showed that prices rose at their fastest pace for three and a half years in April as energy and food costs jumped.

This time last year, many investors predicted that an election victory for Turkey’s governing AKP party and continued economic growth and budget consolidation could mean Turkey would be a member of the investment-grade club by now. Those boxes may have been ticked, but a credit-rating upgrade – and a potential thaw in relations between Turkey and the ratings agencies – still looks some way off.

via Turkey and the Raters: The Love Story Continues – Emerging Europe Real Time – WSJ.

May 4, 2012
Turkey attacks S&P for warning about outlook for economy

Turkey’s Prime Minister Recep Tayyip Erdogan addresses members of parliament from his ruling AK Party (AKP) during a meeting at the Turkish parliament in Ankara on April 24, 2012. (AFP PHOTO/ADEM ALTAN)

ISTANBUL, Turkey: Turkish Prime Minister Recep Tayyip Erdogan denounced Standard and Poor’s rating agency on Thursday, saying its downgrading of Turkey’s outlook was clouded by an “ideological approach.”

Erdogan told a televised meeting in Istanbul: “This is entirely an ideological approach. You cannot fool anybody, you cannot fool Tayyip Erdogan.”

He condemned the outlook revision as “very odd” and hit back at what he implied was discrimination by S&P, which had improved the outlook of crisis-hit neighbouring Greece, while lowering the perspective for Turkey.

The Turkish premier also threatened not to recognise the Standard and Poor’s as a credible ratings agency.

On Tuesday, Standard and Poor’s revised the outlook on Turkey’s long-term foreign and local currency sovereign credit ratings to stable, from positive.

On Wednesday, the agency lifted Greece out of selective default status in view of a bond swap which cancelled a big slice of Greek debt.

Explaining its view of Turkey, the agency said: “Less-buoyant external demand and worsening terms of trade (the price of exports compared to imports) have, in our view, made economic rebalancing more difficult, and have increased the risks to Turkey’s creditworthiness given its high external debt and the state budget’s reliance on indirect tax revenues.”

The agency said: “We have revised the outlook on Turkey’s long-term sovereign credit ratings to stable from positive, reflecting our view that the ratings are likely to remain at the current level during the next 12 months.”

Finance Minister Mehmet Simsek joined the government’s criticism and blasted the report as full of “very serious” mistakes.

“They should first do… correct analyses,” said Simsek, accusing Standard and Poor’s of having obsessions about Turkey and failing to appreciate the political stability in the country where the governing Justice and Development Party (AKP) headed by Erdogan is exercising its third term in power in a row.

Turkey’s economy grew by 8.5 percent in 2011 and by 5.2 percent in the final quarter, official data showed on Monday.

The Turkish government forecasts that growth of gross domestic product will slow to 4.0 percent in 2012 owing to the effects of the eurozone crisis, but is confident that the slowdown will be short-term.

However, analysts worry the country’s widening current account deficit is a sign the economy is overheating and is in for a sharper slowdown.

On Thursday, official data put inflation on a 12-month basis at 11.14 percent in April after holding steady at 10.43 percent for two months.

Turkey’s central bank forecasts inflation to slump to 5.0 percent in 2012.

via THE DAILY STAR :: Business :: Middle East :: Turkey attacks S&P for warning about outlook for economy.

May 4, 2012
Breaking….S&P downgrades Turkey’s outlook

Breaking….S&P downgrades Turkey’s outlook.

Just in from S&P:

‘Standard & Poor’s Ratings Services today revised the outlook on Turkey’s long-term foreign and local currency sovereign credit ratings to stable, from positive. At the same time, we affirmed our ‘BB/B’ foreign currency and ‘BBB-/A-3′ local currency long- and short-term sovereign credit ratings on Turkey. We also affirmed the Turkey long- and short-term national scale ratings at ‘trAA+/trA-1′. The ’3′ recovery rating and ‘BBB–’ transfer and convertibility (T&C) assessment remain unchanged.

Less-buoyant external demand and worsening terms of trade (the price of exports compared to imports) have, in our view, made economic rebalancing more difficult, and have increased the risks to Turkey’s creditworthiness given its high external debt and the state budget’s reliance on indirect tax revenues. We have revised the outlook on Turkey’s long-term sovereign credit ratings to stable from positive, reflecting our view that the ratings are likely to remain at the current level during the next 12 months.’

Ah yes, that’ll be those Erdaganomics again, then. You read it here first.

via Breaking….S&P downgrades Turkey’s outlook. | A diary of deception and distortion.

May 2, 2012
French credit downgrade could come ‘within days’

Standard & Poor’s expected downgrade could create panic in the financial markets and make eurozone crisis even worse

Richard Wachman, City editor, Toby Helm and Kim Willsher

Standard and Poor's is expected to cut France's triple A credit rating 'within days' Photograph: Justin Lane/EPA

France could be stripped of its triple-A credit rating before Christmas, raising new doubts about the survival of the euro, analysts have predicted.

Standard & Poor’s – one of the three top rating agencies – is expected to cut France’s rating within days, in a move that would weaken its ability to raise funds on financial markets.

The move would raise doubts over the future of the single currency at a time when questions abound as to whether the deal thrashed out in Brussels represents the breakthrough hoped for in advance of the summit. Andrew Tyrie, chairman of the Commons Treasury select committee, raised the spectre of Greece leaving the eurozone, saying it was unlikely Athens could afford to pay its way if it stayed in the zone. “Few people believe that Greece can remain solvent within the eurozone,” he said. “Should Greece have to leave, the recapitalisation of a number of continental banks would be necessary.”

David Cameron and George Osborne have stressed that their top priority is for the eurozone to survive the crisis because the consequences of a disorderly breakup would be devastating for the UK as well as the European economies. However, most Tory MPs now doubt that it can survive in its current form. Bill Cash, the veteran Eurosceptic MP, said: “The entire European Union project is unravelling as the euro itself unravels.”

The imminence of a ratings decision by S&P may explain why France has sought to deflect attention by lashing out against Britain, claiming the UK’s financial position is weaker than its own. Last week the Bank of France suggested the credit rating agencies train their fire on London, even though there seems no imminent danger of Britain losing its premier rating.

After days of angry exchanges between Paris and London, both sides called for a ceasefire. A senior British diplomatic source said: “I hope all this calms down soon, as it is not in anyone’s interest for it to continue. That, I believe, is why the French prime minister called Nick Clegg on Friday afternoon [to build bridges].”

The diplomat added: “We can only guess that what’s behind it is that they’re so nervous about losing the triple-A rating, nervous not just for political and economic reasons, but because there’s an election coming up.”

Analysts said that if France’s rating was slashed its borrowing costs would rise, making it more expensive for Paris to refinance its debt burden in the new year. A downgrade would also hit France’s ability to contribute to the European financial stability facility, set up by members of the eurozone to combat the eurozone’s sovereign debt crisis, and provide emergency funding. Traders in London said the price France has to pay to borrow has already risen, indicating that markets have partially discounted the possibility of a lower credit rating.

France has to pay more to borrow relative to fellow triple-A rated Germany: when France borrows over 10 years it pays an interest rate that is at least a percentage point higher than what Berlin pays.

One analyst said: “The overall perception is that French finances are weaker than Germany’s and this imposes significant extra costs on France.”

Adding together repayments of existing debt, interest owed and new borrowing, France needs to find €400bn (£335bn) next year just to stay afloat. An extra 1% would cost French taxpayers €4bn a year. European leaders are under pressure to boost the firepower of the EU’s multibillion bailout package after Belgium’s credit rating was cut by Moody’s, another of the top three ratings agencies. Moody’s warned that indebted eurozone countries such as Belgium would find it increasingly hard to fund their debts or achieve economic growth in the face of Europe’s austerity drive. “The fragility of the sovereign debt markets is increasingly entrenched and unlikely to be reversed in the near future,” warned Moody’s.

Rival ratings agency Fitch said it could cut Belgium’s credit rating, along with those of Spain, Italy, Slovenia, Cyprus and Ireland. Fitch kept France’s AAA credit rating intact, although it revised its outlook for the country down to “negative”.

The latest credit rating changes came as the EU released details of the “fiscal compact” deal designed to rescue the euro.

www.guardian.co.uk, 17 December 2011

December 18, 2011