They hide the method from the whole world! Reacting Turkey decision: They are not neutral

While credit rating agencies ignore the ‘realized’ growth and improvements in countries such as Turkey, the ‘belief’ that some indicators in the economy will improve in another country is the reason for raising the rating.


Moody’s, S&P and Fitch Ratings, which have a monopoly on credit rating ratings, have been authorized by the US Securities and Exchange Commission to rate how risky a loan allocation to a firm or country is. Credit rating agencies are expected to present an objective opinion and rating as a result of their analysis, but these agencies do not publicly disclose the content of the rating models they use.

In particular, the credit ratings given during the 1997 Asian Financial Crisis and the 2008 global crisis revealed that these institutions did not guide investors by ‘rating companies and countries’ and acted as an operational force. During the Asian Crisis, these institutions ‘unexpectedly’ lowered the credit ratings of Indonesia, South Korea, Malaysia and Thailand by 5 levels between July 1997 and November 1998, causing the investors to panic and the crisis to deepen.

The so-called ‘big three’ organizations also ensure that bad companies keep their credit ratings high, allowing them to take out loans until the last day. Companies like Enron, Worldcom, Parmalat and Lehman Brothers were given high credit ratings just before they went bankrupt. So much so that in the movie adaptation of the book ‘The Big Short: Inside the Doomsday Machin’ by Michael Lewis, who is known as a detective in financial circles, it was mentioned that credit rating agencies ‘sell notes for money’.


Institutions that keep the credit rating of Greece at the level of “investment grade”, whose economy collapsed in 2010 and waiting to be rescued by European countries, rated Turkey, the fastest growing economy in Europe, as ‘stable’ with 9.2% in 2010 and 8.5% in 2011. kept it. In the OECD “Economic Outlook” report, 2022 GDP growth forecast for Turkey increased from 3.7% to 5.4%. The latest August export data are 13.1 percent higher than last year.

While the amount of international direct investment coming to Turkey increased by 21% in the first 6 months of 2022, the downgrade of Turkey’s credit rating by the ‘method’ that S&P hides from the world can be explained not by data, but by political motivation.


Credit rating agencies measure the ability (creditworthiness) of countries or companies to repay their loans. While measuring the credibility, they consider the political and legal situation that directly or indirectly affects the economy, as well as the economic indicators of the country, and evaluate the country’s risks and give a final note.

Although the ratings of Standard & Poor’s, Moody’s and Fitch Ratings, which hold this market, differ slightly from each other, the highest rating is AAA (or Aaa) and the lowest is D. These organizations evaluate the inability of countries and companies to repay both short-term and long-term debts. They essentially measure not a country or company, but the risk of that country’s bonds and how ‘lending/investing worth’ they are. They also assess and grade the ability of countries to borrow both in their own currency and in foreign currencies. Next to the grades given, there are also positive (+), negative (-) and stable expressions, these expressions show what kind of expectations they have about the situation of the country that the grading is made for the next period. If a grade is AA+, it means that there is an expectation of an increase in the next semester grading of this country. If this rating is AA-, there is a downward expectation for that country in the upcoming period.

The three largest companies in the credit rating market, Standard & Poor’s, Moody’s and Fitch Ratings, constitute 95 percent of the market. Although there are other significant companies apart from these three institutions, the market generally displays an oligopoly in the hands of this trio. These institutions have been in operation since the early 1900’s, but their stellar shine came after they were referenced by the laws of the Capital Market Boards in Europe and the USA in 1975. So much so that large pension funds can buy the bonds of that country if at least two of these institutions give a BBB rating. Again, institutional investors have to pay attention to the evaluations of these companies while investing. Such obligations imprison countries and companies in need of external financing to credit rating agencies. Of course, since these institutions grade countries or companies according to their own foresight and sometimes even prejudices, there is a margin of error. There are examples in history where credit rating agencies were wrong and caused major crises. The most recent of these examples is the collapse of Lehman Brothers, which they gave an A2 rating in 2008, and the spread of the mortgage crisis from the USA to the world in waves.


Turkey’s story with credit rating agencies began in 1990. However, due to global problems, it was 1992 when Standard & Poors announced the ‘investment country’ rating for Turkey. In the same year, an organization named Moody’s gave Turkey a Baa3, that is, ‘below medium credit rating’. In 1994, Fitch B gave it a ‘non-investment, overly speculative’ rating. Turkey regained its investment grade status in 2013, which it lost in 1994, but this situation only lasted for 3 years. This rating was lowered after the coup attempt in Turkey.

Investors who want to invest in that country follow the ratings given by the credit rating agencies (especially for Moody’s), known as the ‘zero teacher’ in the Turkish public, and decide on the country where the money will flow. For example, in the East Asian Crisis in 1997, it was observed that the crisis in these countries deepened even more immediately after the notes on the Asian countries in question stating that the countries could not be invested.

Despite the relatively rapid recovery after the coup attempt in Turkey in 2016, credit rating agencies downgraded Turkey’s rating earlier than their grading schedules or changed it to stable, thus contributing to the growth of the financial markets’ wounds from the coup attempt. Although Deputy Prime Minister Mehmet Şimşek sent a teleconference to global investors right after the coup attempt, that everything was fine and under control in the country, the positive effects of these messages were diminished by the negative ratings of credit rating agencies. Standard & Poor’s unexpectedly downgraded Turkey on 20 July 2016, just five days after the coup attempt. The same institution changed Turkey’s rating outlook to negative on January 27, 2017, again contrary to its calendar. On January 27, 2017, Fitch lowered Turkey’s credit rating by one notch. On the other hand, Moody’s downgraded Turkey’s credit rating on September 23, 2016, and changed its credit outlook to negative on March 18, 2017.

Credit rating agencies often have to revise their growth forecasts for Turkey upwards. For example, Moody’s estimated Turkey’s 2017 growth rate as 2.2 percent, then 2.6 percent and finally 3.7 percent, but the real growth rate was 7.4 percent. This is an important indicator that credit rating agencies think very negatively about Turkey.


The decisions of the credit rating agencies, which are very stingy about Turkey, about Greece are quite interesting. If we make an evaluation according to the macroeconomic indicators that these institutions take into account when giving ratings, they should give a high rating to Turkey and a low rating to Greece. However, the situation is exactly the opposite. On January 20, 2018, Standard and Poor’s (S&P) upgraded Greece’s rating from B- to B and kept its outlook positive. The outlook for Greece, which could not get out of the crisis on its own, is ‘positive’ according to S&P, but the situation in Turkey, which is the second fastest growing country in the OECD (according to S&P’s May 2018 decision), is ‘stable’ and its credit rating is being lowered.

Fitch Ratings, one of these institutions that generally follow each other in their decisions, also upgraded Greece’s credit rating from B- to B on February 19, 2018 and evaluated the credit rating outlook as ‘positive’. The explanation for this upgrade was ‘Fitch believes that general public debt sustainability will improve with the support of the continued GDP growth in Greece’. In other words, while credit rating agencies do not favor and ignore the growth and improvements that have taken place in countries such as Turkey, on the other hand, the belief that some indicators in the economy will improve in another country is the reason for raising the rating.

Turkey is not the only country that reacts to the far-from-objective decisions of credit rating agencies. Italy took Standard & Poor’s and Fitch Ratings to court in 2014, citing that they had adversely affected the markets by lowering Italy’s ratings in 2011 and 2012. Again in 2014, the reliability of these organizations in the EU was discussed and three technical standardization regulations were approved for their work. According to this regulation, steps were taken to enable credit rating agencies to be more transparent in their decisions and to facilitate their audits. On the other hand, work has been initiated to establish a structure that will reduce investors’ dependence on credit ratings of credit rating agencies and encourage competition among these agencies. The European Securities and Markets Authority, ESMA, has also established a supervisory mechanism on whether credit rating agencies engage in discrimination and favoritism.


Credit rating system provides a very useful operation when it works objectively and does not try to generate rent. The risk premium and interest rates of the bonds of the countries or companies with high risk are kept high so that the risk-taking investor is protected. On the other hand, countries with a positive outlook and low risk can borrow at low interest rates. The investor can buy the bonds of that country or company with confidence, as the return is guaranteed. However, if the credit rating system fails and risky countries are shown as low risk or if low risk countries are punished as high risk, this situation leads to crises and injustice. The biggest disadvantage of these organizations is that the evaluations are based on numbers up to a point and with foresight after a point. There are margins for error, and there are many examples of this in history. Incorrect or guided assessments result in demoralization and business disruption in the markets.

The ratings made by the three major credit rating agencies during the 2007-2009 crisis and the high credit ratings of the failed companies have reduced the confidence in these institutions worldwide, and alternative agencies have been sought in the EU and the USA, and mechanisms to control credit rating agencies have begun to be developed.

Countries that need external financing and are integrated into the global financial system have no choice but to work with these institutions in the current conjuncture. However, as in the case of Turkey, working with these institutions under the constant threat of downgrading also has a very corrosive and disruptive effect on the markets. Structural reforms to reduce the need for external financing in the long run are the quickest but most difficult way to deal with credit rating agencies.