Why Turkey's 'tense' relations with rating agencies is damaging

Published September 25th, 2014 - 03:55 GMT
The deterioration of relations between Turkey and credit rating agencies will make life harder for both investors and the nation.
The deterioration of relations between Turkey and credit rating agencies will make life harder for both investors and the nation.

President Recep Tayyip Erdoğan's discontent with international global rating agencies backed by threats that Turkey may break ties with them if their assessments are not in favor of the country has drawn criticism from analysts, who claim such rebukes will likely inflict damage on the Turkish economy rather than the agencies.

Erdoğan told members of the press last week aboard his new official aircraft: “I instructed the prime minister [Ahmet Davutoğlu] that if they [Moody's and Fitch] keep up their attitude like this, to cut ties with them. These [agencies] have not earned us anything.”

The deterioration of relations between Turkey and credit rating agencies will make life harder for both investors and the nation, Standard Bank Emerging Markets Chief Economist Timothy Ash said. Instead of tensing up the relations with these institutions, extra effort is required to convince them, he added.

Market players take the assessment reports prepared by these institutions into consideration before making their investment decisions, the analyst asserted, adding that even though the credit rating agencies were not so willing in the past to grant Turkey the grade it deserved, severing ties is still not in Turkey's favor.

Ash argued that the extremely centrist power structure in Turkey poses risks to the separation of powers, which causes tremors in the government's relations with such critical institutions as the media, the business world, the International Monetary Fund (IMF), the European Union, the police, the judiciary, the military and some state institutions.

An accounting and finance professor at the University of Alaska, Anchorage, Gökhan Karahan underlined the role these institutions have played in the latest global financial crisis with their poor assessments. “Nevertheless, we have to evaluate the findings of these institutions about Turkey by understanding how hard the coming months will be, not by fighting against the wind. We have to keep in mind that they have degraded even the US economy, although this may have come a bit later than what we had expected,” he noted.

Şengün Yeniyurt, an associate professor at the Department of Supply Chain Management and Marketing Sciences of Rutgers University, points to how common it has been for the rulers of the nations with embattled economies to condemn foreign institutions. “Such assertions and assaults cause damage to companies and businessmen that are planning to make direct investments and it usually poses a negative situation for the Turkish economy as well,” he said.

Integrity and reliability are two major assets for credit rating agencies, and to sustain their success in business they have to be trustworthy in their assessments, he said, adding that these imperatives bar them from engaging in political considerations.


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