Unfair ratings by international agencies cost Turkey a fortune

ANKARA

The stable Turkish economy deserves more than what the leading international rating agencies tell the world, according to Finance Minister Mehmet Şimşek. EPA photo

International credit rating agencies have failed to inform the world about any of the economic crises to date, Finance Minister Mehmet Şimşek said, speaking at an Ankara meeting at which the Foundation for Political, Economic and Social Research (SETA) delivered a report on the issue. The report harshly criticizes the leading agencies, agreeing that they have played a role in deepening the economic crisis.

“Turkey would have attracted an additional $32 billion in portfolio and foreign direct investments if Turkey had been granted the rating it deserves,” Şimşek said.

Ratings are determined by looking at a country’s capacity to pay back its loans and whether it has the political will to do so, Şimşek said, adding that the Turkish economy has grown by an average of 5.3 percent every year for the last decade. The country seems likely to continue growing for three or four decades more, he said. The markets think differently from rating agencies, Şimşek said, adding that the country has attracted some $120 billion in investments in the last decade, which corresponds with the time period that governments of Prime Minister Recep Tayyip Erdoğan’s Justice and Development Party (AKP) have been in power.

Turkey’s rating falls below “investable” levels, according to Standard & Poor’s, Moody’s and Fitch, the three largest international ratings agencies. Many funds and firms are obliged to take their ratings into consideration when choosing a country to invest in.

These agencies need structural change, the minister said.

Benefits of int’l capital
The criticism in the SETA report was even stronger. “The share of bond issuance is larger than the share of credit rating in the revenues of these institutions,” said the report, prepared by Erdal Tanas Karagöl and Ülkü İstiklal Mıhçokur. “This raises the criticism that they are serving the benefit of international capital.”

Despite the fact that the majority of the criteria for ratings evaluation are financial, the line between the objective and subjective elements is not clear, they said. The agencies are not are not consistent, the report said.

Funds in many countries, especially those in the U.S., are evaluated according to these credit notes. Thus, credit ratings may become a weapon of a political war,” the report said, claiming that the system makes both fund issuers and purchasers dependent on the ratings agencies. The agencies have been using the same methodology for many years, and this is not in harmony with a changing conjectural environment, the report said, adding that a single methodology does not suit the financial system, as many countries are structurally different. The report also claimed that some problems are caused by “inexperienced” reporters.

The history of credit ratings goes back to 1991. Turkish Cabinet members, including Erdoğan, have repeatedly blamed the agencies for downplaying the country’s rapidly growing economy.