July 18, 2016: “The coup attempt was unsuccessful; however, I am still monitoring the country in terms of a rating cut. If I see any slowdown in growth in the medium term, any weakening in its corporate power and reform agenda and deterioration in buffers that will alleviate the risks regarding external borrowing due to the effect of the attempt, I will downgrade its rating.”
Aug. 5, 2016: “I am skipping this day in my diary on which I will make a Turkey statement. I will continue my review in accordance with the previous similar views.”
Sept. 5, 2016: “The political uncertainty in Turkey poses the most nominal level of risk for most foreign companies in the country. I am waiting for the developments, the credit effect on most companies operating in the country to become insignificant.”
Sept. 21, 2016: “The shock in the Turkish economy in the aftermath of the July 15 attempt has largely dissipated. However, the country's long-term problems still apply… I will conclude the review I started in July within the next month.”
Two days later…
Sept. 23, 2016: “I concluded it. I am downgrading the credit rating to junk status.”
This is what stands out when we open Moody's' diary in relation to Turkey post-July 15. The last two records in particular are called faking. But in what sense?
I personally think it is because of the discourse that “there is still time” for the result to be achieved by balancing the strong and weak points that are also indicated in the details of the statement. First say “next month,” then cut the rating just like that. This is what I find strange.
On the other hand, I do not really agree that the commonly embraced “making a negative judgment after giving a positive message” is surprising. Yes, it is true that a positive discourse creates a psychological pleasantness, but that disconnection does not seem like a surprise to me. Why? Because of the details of the content. Because Moody's can very well provide such an explanation: “I meant the short-term effects and also stated my negative opinion concerning the long term. This is why I downgraded the credit rating.”
If you ask if the decision was generally a surprise besides the diary fallacy, no, not really. Because for starters, it cannot be denied that when Turkey is in question, Moody's behaves “moody,” as witnessed by history in the last two decades. That's for sure.
If you look, questions such as the following were long discussed numerous times not only in this column but all around the world:
*Are credit rating agencies able to give unbiased ratings specific to a country or agency?
*Are they able to manage to fulfill this job without ever bestowing privileges called “preferential treatment”?
*Are they able to make timely right decisions that have informational value that will show it the way from “in front” of the market?
The whole world is also aware that it is difficult to answer “yes” to the questions that have become the subject of academic articles, reports and books. Hence, I say, since we have gotten into these subjects this much today, let's look at all that has happened.
FROM GROUND LEVEL TO BASEMENT
Moody's had made our credit rating negative as of April 2014 and continued to monitor it. It got the golden opportunity on July 15. And with the latest decision it made, it dropped Turkey's investment-grade status from the ground level Baa3 to the highest basement floor Ba1.
Hence, we lost the investment-grade rating we achieved in May 2013 with years of efforts and patience. We lost at least two investment-grade statuses along with the Fitch rating.
Two reasons are given in summary:
The increase in risks regarding the country's external borrowing requirements.
The weakening in credit supporting foundations, primarily growth and corporation power.
So what will happen now? Funds requiring at least two investment-grade ratings will no longer pay attention to us, while our external borrowing costs will show upward pressure. In my opinion, there will also be a general damage to the image whether we like it or not.
What's worse is that I see in the details of the statement that we will not be able to return to the ground level we lost for a long time. Hence, the conditions specified to upgrade credit ratings require structural and corporate improvements that will “require time.”
A MATTER OF CHOICE
Without draining you with the details, when I reviewed all the statements made by Moody's, I think that the agency “chose to remain in the exaggerated side in terms of the development of economic dynamics.” In fact, while the most basic issue here is to reverse the debt and as confessed in Moody's statement, even though Turkey's report card is good in this aspect, I see in the decision to downgrade that existing weaknesses are “preferred” over strengths.
In this context, while the decision to downgrade to a speculative level also contains speculation within itself, it seems it has found this strength backed by the “corporate weakening risk.”
SOME THINGS …
Now, within the scope of all these observations, Moody's' diary and the reason why the rating decision came so hastily need to be questioned. While a basic answer is very clear in all our minds, allow me to conclude with a famous statement Thomas Friedman made in the 1990s:
“We are actually living again almost living in a world with two super powers: The U.S. and Moody's.”
Even though the related arguments in Friedman's article that day and the degree of the claims are open to the debate of “reality and validity” 20 years later today, some things are still real and valid.
After this unpleasant incident, what we need to do is see the truths and think and try to gather ourselves in a way that will not allow anybody to talk ill off us.
Of course we also need to make an effort to explain ourselves properly.
As the DEİK Communication Committee, we are starting our first abroad contacts today to explain our economy for this purpose.
I salute you all from the trip to Brussels for which we departed as I write these lines…