Greece upgraded, Turkey downgraded?

Standard & Poor’s has downgraded Turkey. It has not changed the country’s credit rating, but lowered its outlook from “positive” to “stable.”

As usual with downgrades, it has become an issue of national pride here. By itself the downgrade does not mean much -- we have hardly been lowered to Serbia’s credit status. But Turkey was downgraded, while Greece got an upgrade. Now that is too much. Everybody, including the IMF, has been tripping over each other to bail out profligate Greece, while Turkey has been playing by the rules and doing well.

That is when Prime Minister Recep Tayyip Erdoğan accused S&P of being ideological in its rating decisions, accusing it of “favoring Christian Greece over Muslim Turkey.” This message is for the domestic layman’s consumption, but is meaningless for professionals, foreign and Turkish alike. When the rhetorical dust settles, however, we still have to ask ourselves if Greece is really trending up and Turkey down.

Let me start with the facts. According to Standard & Poor’s classification, Turkey today is a non-investment grade speculative country with a stable outlook. So are Jordan, Portugal, Serbia, Romania and Hungary. On that scale, Greece was until recently a highly speculative country with the possibility of imminent default. Now Greece is out of “selective default” status. That is an upgrade for sure. However, Greece has the world’s lowest sovereign rating at the moment. Do you consider this an upgrade from that angle? I don’t think so. But one thing is clear: after two bailouts, each amounting to 100 billion euros, Greece appears to be back on the market.

When you look at the facts, Greece did not get an upgrade, and Turkey was not really downgraded. But shrewd electioneers see a political risk: “You steered Turkey away from the IMF and all of its prescriptions, but look at what happened at the end of the day! Even bankrupt Greece is doing better, while we are getting stuck.” So my initial analysis is that the accusation of ideologically based ratings is damage control for Erdoğan. 

I would also say however, that Erdoğan was not that far from the truth. If he had a better understanding of economics and economic policy-making, which he does not, he might directly blame the IMF and their lot for the way they handled this crisis. There is ample ground for a feeling of betrayal after the way things have played out in recent years. We learned in the latest crisis that when a crisis hits a country on the periphery of the global system, like Korea or Turkey, it’s their own fault for not playing by the rules. When the same happens in one of the core countries however, they simply change the rules. It’s hypocrisy at its finest. Is a sense of betrayal justified? Of course it is. Is it meaningful for the professional class? Definitely. Does that mean anything to the man on the street? Unfortunately it does not. 

So why downgrade Turkey now? Rating agencies have made so many mistakes in the recent past that they are now keener to go along with public opinion. Turkey’s powerful record does not change the fact that its economy is now highly vulnerable to sudden shifts. That is the common opinion across editorial pages. Oil prices surge amid unrest in the Middle East – Turkey is vulnerable. Fund flows suddenly shift because the European economy gains firmer footing – Turkey is vulnerable. The Syrian crisis gets out of hand and closes all southward trading routes – Turkey is vulnerable. 

There is more uncertainty in the world today, and Turkey gets far more than its fair share of it. Could our external deficit have something to do with it, I wonder?