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CB governor lambasts credit rating agencies for dragging heels on Turkey
Speaking to the press in İstanbul on the latest developments in macroeconomic indicators and the global economy with the top administration of the bank, Yılmaz said the credibility of the rating agencies was already in the limelight in the international community, as was the case at the latest G-20 and the International Financial Corporation (IFC) meetings. “These institutions are posing serious moral problems nowadays, but I don’t think their abolishment would bring about a solution to these problems. Still, their moral weaknesses must be reduced,” he commented.
Although global investors, especially pension funds, perceive Turkey as a center of investment with high potential and limited risks and giant fund management companies are suggesting that their customers evaluate Turkey’s investment opportunities, the credit rating agencies still feign reluctance in bumping up Turkey’s grades. Turkey’s credit rating is still far lower than the debt-stricken nations of Europe such as Spain, Greece and Portugal, which are teetering on the brink of economic collapse.
Turkey, on the other hand, sustained only a slight blow from the global economic crisis and is touted as among the first nations to emerge from the perils of the crisis. Yılmaz said haggling with these agencies to persuade them to upgrade Turkey’s ratings would be “very wrong.”
Central bank raises FX required reserve ratio The Central Bank of Turkey has increased the required foreign exchange (FX) reserve ratio by 0.5 percentage points, from 9.5 percent to 10 percent, which will take some $719.6 million in foreign currency liquidity out of the market. The decision was made taking into consideration recent credit developments and as part of the bank’s exit strategy from an expansionary monetary policy, the central bank announced on Thursday in a written statement posted on it website. The bank had previously cut the FX required reserve ratio by 2 percentage points, from 11 percent to 9 percent, in December 2008, in a bid to alleviate the impact of the global financial crisis on the domestic economy by providing significant liquidity to the banking system. In April, the bank announced that “measures related to FX liquidity would be increased to the pre-crisis levels gradually and at a controlled pace.” Accordingly, the FX required reserve ratio was increased by 0.5 percentage points in April, with approximately $693.3 million in foreign currency liquidity withdrawn from the market. Ankara Today’s Zaman |
“We will continue to do the right thing. The markets are already aware of the real value of our actions. We will shame them by continuing our path of stability,” he asserted. Yılmaz also added that, as the central bank governor, he has been in constant contact with the administrations of these agencies and is keeping a line of communication open to convey developments in the Turkish economy correctly and firsthand.
Deputy Governor Mehmet Yörükoğlu also commented on the sluggishness of the rating agencies in hiking the country’s rating, saying this was indeed what they normally do. “Moreover, they are not doing this only for Turkey. Almost all developing countries are experiencing the same problem,” he noted.
We did the stress test for real in 2001
Asserting that the latest sets of data from the US have sparked fears of a double-dip recession or a return of the crisis, Yılmaz said he believes the worst case scenario in this issue is less likely to occur than the optimistic scenarios given the absence of fear after the stress test results for the European banks, which were released a week ago.
For Turkey, Yılmaz said stress tests for the banks were conducted “for real” during the 2001 economic crisis, which ended with the confiscation of numerous banks for failing to survive the harsh tremors of the crisis. Turkish banks are comfortable today with respect to even the Basel III criteria, he acknowledged and claimed that they would encounter no problems even if the minimum requirements were doubled.
Yılmaz further shared his assessments on the suspension of the legislation of the fiscal rule by the government to October, saying this would create no significant problem. Deputy Governor İbrahim Turhan explained Yılmaz’s statement, saying that the Middle-Term Economic Program (MTEP) will already be in progress during budget preparations this year and also that the fiscal rule would come into effect starting from Jan. 1, 2011. He said nothing has been lost with the suspension since the fiscal rule brings nothing more than the MTEP, except for introducing a guarantee for much longer-term stability.
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