Does Turkey's Credit Rating Reflect Political Calculations?
Author: sabah Posted March 19, 2012
A country’s credit rating determines the attractiveness of foreign investment in that country. If your rating is high, direct foreign investments increase and you pay less interest on your debts. If your rating is low, investments are curtailed and you will pay higher interest.
Turkey’s credit rating is still at a “not advisable to invest” level even though Turkey has paid all its public debt on time, and it is in an even better situation in terms of its public budget-deficit figures and debt load. Why is Turkey’s credit rating still kept below the sinking economies of Iceland, Portugal, Ireland and Italy? When you look at Poland, whose economic performance is behind Turkey but still has an A rating, one has to think that this is intentional.
So why is Turkey’s rating not readjusted to an “investment advisable” level? Because about $50 billion of direct investment is likely to come to Turkey, and some inside and outside this country do not want that. With such a substantial increase in direct foreign investment, interest rates will fall. This bothers the interest lobby that is used to making easy profits. They do not want to forego buying cheap money externally and selling it in Turkey at five to six times the interest rate.
Secondly, they do not want to increase Turkey’s rating because of Prime Minister Erdogan. They think that if Turkey’s rating is improved, then Erdogan’s credibility will be boosted even more. After all, there are many who envy his record of properly managing the public budget, moving education and health budgets above military expenditures for the first time and reducing the national budget deficit and debt load.
While many countries suffer from financial crises arising from state operations, in Turkey the strength of public finance is a pillar of economic stability.
Only a few days ago, we heard that Citigroup, the third-largest bank in the US, and three other major financial institutions did not pass the "stress test." Their capital needs reinforcement, or else they will all become a risk for US public finance. In Turkey, alongside public finance, the banks are also strong. Their capital adequacy levels are far above global averages.
So why aren’t they adjusting our credit rating?
It is not the current deficit, but the fear that interest rates will fall and Erdogan will benefit from that. Moreover, our current deficit is not from the public sector. It is all because the private sector spends more than it produces.
So how does the private sector finance these expenditures?
Our private sector finances most of its expenditures with the money it keeps abroad. It gives loans to its own companies from abroad. This enables the company in debt to avoid paying taxes, so the same person is both the creditor and the debtor. That is why our current deficit continues.
Who are these credit-rating agencies?
When you question them, they claim to be independent and objective. Not so. Their background is full of blackmail and ratings-fixing. If they had been objective, could Greece, Portugal, Ireland, Iceland and Italy maintain their A ratings until they collapsed? Could the US live through the Enron scandal, or the mortgage crisis of 2008? Unless you get proper answers to these legitimate questions, don’t believe what the managers of rating agencies say. They are full of lies. Their goal is to keep on making easy money from Turkey. This is why we have to keep fighting interest lobbies until Turkey’s rating is adjusted to an accurate level.
Read More: http://www.al-monitor.com/pulse/business/2012/03/why-has-turkeys-credit-rating-no.html