Turkey: Fitch and the Crane
Below is my Hurriyet Daily News column for this week, which you can also read at the Daily News website. Sorry for the lame wordplay, but it isn’t me this time; it is E.U. Chief Negotiator Egemen Bagis, aka #sakaciegemen in the Twitter community, who has turned out to be quite a joke-maker.
I have quite a few interesting additional comments, so there will be an an addendum later today. In the meantime, you can have a look at the previous week’s column, which was also posted here, as it complements this one rather well. And if you still crave for more, you can have a look at the Citi Turkey presentation and Emerging Markets report, where the charts came from.
So on to the column:
I had no idea what the ratings agency Fitch could have in common with a crane.
Soon after Chief EU negotiator Egemen Bağış tweeted, at a meeting about the EU’s Leonardo da Vinci education program, that “he was driving a truck called Leonardo da Vinci” (vinç is the Turkish word for crane), Turkish daily Sabah, whose anti-Semitic rhetoric I discussed in a previous column and blog posts, disclosed “Fitch’s code”, obviously inspired by the Dan Brown bestseller.
Perhaps taking cues from Economy Minister Zafer Çağlayan, who recently urged us “to look at who owns Fitch”, Sabah took on Fitch as part of its series about the ratings agencies, exposing that its two shareholders are members of Opus Dei and Illuminati. I had learned from Tom Hanks that the two are bitter enemies, so it is great to know they have finally put aside their differences.
Unlike at the end of July, Çağlayan did not say this time that “Fitch has done the Fitch thing”, a play on a Turkish swear word that sounds similar to Fitch, but government officials reacted very strongly to the decision to downgrade Turkey’s outlook for external debt from positive to stable, thereby killing hopes of an upgrade to investment grade in the short term.
According to the ratings agency, the decision “reflects an increase in near-term risks to macroeconomic stability as Turkey faces the challenge of reducing its large current account deficit and above-target inflation rate against the background of deterioration in the global economic and financing environment.”
Central Bank Governor Erdem Başçı recently asked what it would take to convince the likes of me that inflation would fall next year, and I will answer that question in next week’s column. As for the current account deficit, last week I explained the Turkish economy’s exposure to Eurozone woes by pointing out the strong trade ties with the EU and the country’s huge external financing requirement.
The more sophisticated among the government supporters note, while acknowledging these vulnerabilities, that markets are judges in a beauty contest, and despite the odd pimple, Turkey is still more beautiful than its emerging market, or EM, peers. A recent chart prepared by Citi Turkey economists takes on this claim by looking at how Turkey compares to 24 other EMs in terms of a number of indicators of external balance, fiscal policy, growth and inflation.
Figures for this year reveal that Turkey “fares poorly in terms of external balance and inflation”. The former is illustrated with another chart, this one from Citi’s global team, which shows Turkey as the country with the highest external vulnerability.
I am sure you’d find Knights Templar, Freemasons and the like among Citi’s major shareholders, but Goldman Sachs reaches similar conclusions. They show that Eastern European countries are exposed most to Eurozone woes, and among these, Turkey and CE-3 (Czech Republic, Hungary & Poland) look especially vulnerable. This might explain why Başçı was comparing the lira to the forint and the zloty during his recent presentation at the Ankara Chamber of Industry.
But then again, Goldman Sachs is controlled by Jews.
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