Standard & Poor’s Archives - Politics Today https://politicstoday.org/tag/standard-poors/ Tue, 15 May 2018 21:14:29 +0000 en-US hourly 1 https://wordpress.org/?v=6.4.8 What are the Ratings of Credit Rating Agencies Themselves? https://politicstoday.org/what-are-the-ratings-of-credit-rating-agencies-themselves/ Tue, 15 May 2018 21:14:29 +0000 https://politicstoday.org/what-are-the-ratings-of-credit-rating-agencies-themselves/

What are the ratings of credit rating agencies themselves, then? It is well below “credibility” for most people around the world, apparently. With a negative outlook. And no (upward) revision is on the horizon.

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There are three major global rating agencies in the world, namely Fitch, Standard & Poor’s and Moody’s. Hence the concentration ratio in the rating industry is shockingly high (95 percent). While Moody’s and Standard & Poor’s have around 40 percent market share each, Fitch has approximately 15 percent.

Like in any oligopolistic industry, it is markedly susceptible to collusion and corruption. Moreover, when the abstract and highly subjective nature of assigning ratings taken into account, it becomes apparent that the extent to which the collusion and corruption level could reach is off-limits.

This “agency risk” emanates naturally from the fact that these corporations try to maximize profits in an unregulated and tremendously concentrated industry. So, if for one reason or another, attaining more profit means zooming in on weaknesses and overlooking strengths in a national economy or industry, and more importantly amplifying or fabricating political risks when there is little or none, then the rational action to take is obvious on the part of these “unchecked” credit rating agencies: go for it. This is the “financialization of ratings.”

Furthermore, one should not disregard the fact that these corporations have their headquarters in New York (all of them) and London (one of them, Fitch, has dual-headquarters). So, though almost always goes unmentioned, the U.S. – global hegemonic power – is home to these agencies and it is more than clear that there could be a “political collusion” between the U.S. and these credit rating agencies, if this is to the interest of both parties. This is “rationality” after all. Credit rating agencies could easily be used as expedients in an effort to further political goals and their ratings could be employed as some kind of an “economic sanction.” This is the “politicization of ratings.”

With the onset of neoliberalism, the global economy has increasingly become interconnected in terms of both trade and finance, hence financialization of the world. In the end, developing countries have found themselves in a delicate financial position, resulting in a myriad number of financial crises in the 1980s and 1990s. In this dramatically intertwined and financialized world, both the absolute size and concentration level of the financial industry have grown exceedingly, resulting in an unspeakably powerful financial industry, with all its “sidekicks,” such as credit rating agencies. In addition, one has to mention that investment funds based in the U.S. have a share of 47 percent in the world, of which just 25 investment banks have a total share of 76 percent in the U.S.

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Therefore, when you are the center of global finance and home to the global credit rating agencies that literally dominate the industry almost entirely, it is unimaginable not to collude and form alliances with these financial corporations and to use them to an extent to achieve political goals. After all, this is an expedient among other tools.

This is probably why credit rating agencies do not make “economic” sense sometimes partly and sometimes terribly for both industrialized and developing countries around the world, not to mention gross failures of credit rating agencies in the cases of Enron and the global financial crisis of 2007-8.

Therefore, one will have a very hard time finding an “economic rationale” behind the downgrading of Turkey’s credit rating by Standard & Poor’s recently. It becomes more suspicious when one adds that planned schedule for reevaluating Turkey’s unsolicited credit rating was due on August 2018. And it becomes even more so when one points out that this downgrade came days after Turkey decided to go to snap elections to be held on June 24, 2018. Maybe, it is politics, stupid, after all.

What are the ratings of credit rating agencies themselves, then? It is well below “credibility” for most people around the world, apparently. With a negative outlook. And no (upward) revision is on the horizon.

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]]> The Turkish Economy in the Aftermath of the Failed Coup Attempt https://politicstoday.org/the-turkish-economy-in-the-aftermath-of-the-failed-coup-attempt/ Fri, 29 Jul 2016 11:52:27 +0000 https://politicstoday.org/the-turkish-economy-in-the-aftermath-of-the-failed-coup-attempt/

The negative effects of the failed coup attempt have remained limited due to Turkey’s strong macroeconomic indicators, strong public finance, sustainable current account deficit, private sector efforts and comforting statements of policymakers and economists.

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On July 15, Turkey thwarted a coup attempt by FETO (Fetullah Gülen Terror Organization) with the resistance of the Turkish people, who showed their faith in the Turkish Republic and democracy. Undoubtedly, military coups or coup attempts have great potential to badly affect the political and economic stability of a country. But, the negative effects of this failed coup attempt have remained limited due to Turkey’s strong macroeconomic indicators, strong public finance, sustainable current account deficit, private sector efforts and comforting statements of policymakers and economists.

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Immediately after the coup attempt, the efforts of the Central Bank officers and economic management team helped to ward off the initial shock waves. In particular, Deputy Prime Minister Mehmet Simsek’s statements for foreign investors played an important role in reassuring investors during this difficult process. Simsek stated that structural economic reforms will be on the agenda, investors’ confidence will be secured, daily life will not be affected and political decisions will be market friendly.There are five important points that stand out in the aftermath of the failed coup attempt.

The Central Bank’s Measures after the Coup Attempt

The measures taken by the Central Bank (CB) on July 17 have played a crucial role in easing the first shock waves created by the coup attempt. Official statements on supplying unlimited liquidity to banks and the assurance of financial stability have stabilized the banking system and the markets, so that possible financial repercussions on the morning of July 18, 2016, could be avoided.

The CB’s decision on July 19, of lowering the interest rates by 25 basis points of the upper band of the interest rate corridor, showed its strong belief in Turkey’s economic prospects. On July 22, the CB announced that meetings will be held with domestic and foreign investors, analysts and members of finance sector. The CB gave a strong message that the Turkish economy cannot be redesigned by a coup attempt.

The Economic Management Team’s Message to Domestic and Foreign Investors

Statements by President Erdogan, Prime Minister Yıldırım and especially Deputy Prime Minister Mehmet Simsek supported the normalization process and economic stability, leading to a climate of trust for domestic and foreign investors and the financial markets.

Simsek’s meeting with 500 international investors via tele-conference was so effective in giving first-hand information about the latest developments, that the promise of unlimited liquidity in the markets and of sticking to the fiscal discipline convinced the markets and investors of the swift recovery.

The Declaration of a State of Emergency

The government declared a State of Emergency for a three-month period to root out the hidden FETO members. It should be underlined that the government’s main intention is only to fight against this terror organization, whose members disguise themselves within various bureaucratic, judiciary and military posts. Therefore, in the period of the State of Emergency, the Turkish government will pay the utmost attention to ensure investors’ confidence in the markets through market-friendly political decisions and ensuring that daily life is as unaffected as possible. It appears that a quick normalization will be realized thanks to the strong democracy, operative markets and continuously enriched investment atmosphere.

The Stable Position of the Stock Market and the Foreign Exchange Market

Although the stock market index (BIST100) declined and exchange rates rose after the coup attempt, such small fluctuations were halted by timely economic measures and comforting statements from politicians. Economic indicators will apparently be optimized soon.

International Rating Agencies’ Statements and Decisions

Immediately after the failed coup attempt, the international rating agencies unfortunately made controversial statements regarding Turkey. In fact, Turkey has a very strong fiscal position and very low levels of public debt and budget deficits. In addition, policymakers have already taken economic measures to prevent fluctuations. Despite all of the positive indicators, Moody’s has threatened to lower Turkey’s credit rating, possibly to the garbage level. Some believe that, with this decision, Moody’s has aimed to drive the markets into panic. Despite the admirable economic performance of Turkey, in the past, Moody’s has acted unrealistically slowly to increase rating levels.

Likewise, Standard & Poor’s has decreased Turkey’s credit rating from BB+ to BB, thus making a negative contribution and causing malicious damage to the reputation of the Turkish economy. Fitch’s decisions will be more important in the near future. Overall, the negative attitudes of the rating agencies seem unfair and prejudiced. These institutions should take into account the potential of Turkey’s economic performance and contributions to the world markets.

Turkey has experienced robust economic growth since 2002, thanks to political stability and reforms. The Turkish economy has grown uninterruptedly for the last 26 quarters. This performance has occurred despite the global financial crisis and the geopolitical risks in the Middle East. This performance will continue with new structural reforms.

Despite the failed coup attempt, economic experts estimate that strong domestic demand will trigger production and investment in the following months. It is not the first time that Turkey has been given such a low rating. Despite the prejudiced attitudes of some international rating agencies, the wheels of the economy should continue to accelerate. In addition to the concerted efforts of the public and private sectors, communication with foreign investors should be set to continue. While Turkey contends with FETO (FEtullah Gulen Terror Organization), economic reforms are on the agenda and the market economy continues to function in its own way.

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