CB governor raps rating agencies for underestimating Turkey

In a rare meeting with newspaper economy editors, Central Bank Governor Durmus Yilmaz yesterday reflected on the global economy, arguing that the "bank stress tests" conducted in Europe have dissipated uncertainty to some extent. But Yilmaz rapped credit rating agencies for underestimating Turkey's economy. Speaking in Istanbul, flanked by his deputies and members of the Central Bank's Monetary Policy Committee, Yilmaz said that unlike credit rating agencies, the global markets view Turkey as "investment grade." "We're talking with these institutions, we're giving them information," he said. "But we won't haggle over what Turkey's note should be. When our policies are correct, the market correctly prices them. We won't disturb this environment. We will embarrass them." The rating agencies "are not fate," he added. Moody's, Standard & Poor's, and Fitch all rate Turkey below investment grade. Five-year credit default swaps, or CDSs, for Turkey were at 164 basis points on July 28, while investment-grade Greece and Spain were trading at 717 and 183 basis points, respectively. A basis point on a CDS contract protecting $10 million of debt from default for five years is equivalent to $1,000 a year. An increase in swaps signals deterioration in perceptions of credit quality. Yilmaz's deputy Mehmet Yorukoglu added that credit rating agencies are "straggling behind" developments. "Many emerging market economies have a worse rating than their real situation," he said. The Eurozone economy is "better today than a month ago," Yilmaz said, adding that European policymakers will face public outrage if a new financial crash forces fresh bailouts. Repercussions for Turkey include having to borrow less or at greater cost and falling exports, Yilmaz said. He also downplayed the possibility of a double dip recession. On the ongoing transatlantic debate over austerity versus stimulus, Yilmaz sided with austerity, saying that in the medium and long term, fiscal discipline is "much more important."