MOODY'S REPORTS: TURKEY'S B1 RATING AND NEGATIVE OUTLOOK SIGNAL POLITICAL TRANSITION RISKS TO REFORM AND TO EXTERNAL LIQUIDITY
New York, August 14, 2002 -- In its new report on Turkey, Moody's Investors Service expresses concern that the economic reform progress of the last three years could slow during the political transition before and after the November parliamentary elections, putting downward pressure on the B1 foreign currency ceiling. The foreign currency bank deposit ceiling and the government's lira-denominated debt rating are both set at the lower level of B3, with stable outlooks.
The rating agency is generally complimentary about the extent of the IMF- and World Bank-assisted reforms, in spite of the turmoil wrought by the financial crisis and deep recession after the initial exchange rate anchor of the program broke down. Turkey's country ceiling has been maintained at B1 since March 1997, although the outlook has been volatile along with both positive and negative developments in the country's banking system, macroeconomic balances, and public finances.
"Turkey's public and external financial balances are performing well even in the midst of the recession," said Moody's Vice President Kristin Lindow, the lead Turkey analyst and author of the report. Passage earlier this month of the EU Harmonization Law enhances prospects that the European Union will start accession talks with Turkey, although not necessarily as early as December. She worries, however, that the "sheer size of the public debt burden is daunting" with "debt ratios that have ratcheted up with each new crisis in recent years." Lindow said it would take many years to reduce the public debt to GDP ratio to its 2000 level, even with meticulous fiscal policy and sustained moderate growth.
Moody's shift to a negative outlook on the foreign currency ceiling last month signaled recognition of the external refinancing and payments pressures that re-emerged as early elections became inevitable, prolonging the country's retrenchment from the international capital markets and risking delays in meeting IMF economic criteria. Lindow emphasized that "in these circumstances, perhaps the best that can be hoped for is that the rating could stabilize if the political transition and new government formation proceed smoothly and the new leaders aggressively assume the mantle of reform."
The rating agency's report, "Turkey: Global Credit Research," is a yearly update to the markets and is not a formal action to alter the credit rating of the issuer.
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