Istanbul Stock Exchange. Wikicommons/Thomas Steiner. Some rights reserved.Before the referendum, global and domestic capital betted on the Justice and Development Party (AKP) regime like a horse whose jockey knows how to win by bending the rules. The bet has reflected the business elites’ preference for stability and their lack of interest in democracy.
In what follows, I discuss the rating agency and investment bank bias in favour of right-wing authoritarian regimes, the sources of fragilities in the Turkish economy, and the vengeance with which the institutional cull under the AKP regime may come to haunt both domestic and foreign capital in Turkey.
Rating agency bias in favour of right-wing authoritarian regimes
The role of rating agency bias in the global financial crisis of 2007-2009 has been discussed and documented. There has been a high level of correlation between agency ratings, all characterised by upward bias in the pricing asset-backed securities. Two common explanations for the upward bias are: (i) conflicts of interest and moral hazard problems due to the payment of rating agency fees by security issuers; and (ii) selective disclosures (or ratings shopping) that arise because of the room for issuers to choose the ratings to be published in conjunction with the security they put on offer.
