Source: Standard
Poor's; Outlook on Turkey revised to stable after elections promise
stability; 'B-/C' ratings affirmed; Nov 7th, 2002
Standard & Poor's Ratings Services said today
it revised its outlook on the Republic of Turkey to stable from negative.
At the same time, Standard & Poor's affirmed its single-'B'-minus
long-term and 'C' short-term ratings."The outlook revision reflects
Standard & Poor's view that the risk of events leading to a downgrade
is now well balanced by the prospect of a more stable and effective
government in Turkey," said Standard & Poor's credit analyst Ala'a
Al-Yousuf. The rating action comes after the moderate Islamic-oriented
Justice and Development Party (AKP) won by a margin in the Nov. 3, 2002,
parliamentary elections, giving it a parliamentary majority.
As the Republican People's Party (CHP) is the
only other party represented in parliament, Turkey now has a single-party
majority government and a united left-of-center opposition for the first
time in two decades. Statements on economic policy made by Turkey's new
government, including pledges to adhere to the IMF-supported stabilization
program and AKP leader Recep Tayyip Erdogan's commitment to accelerate EU
accession, indicate that it is committed to orthodox, market-friendly
policies.
Turkey's ratings remain constrained by a high
public debt burden with a short maturity profile, a fragile banking sector,
and high political risk. Notwithstanding the emergence of a strong,
single-party government, the risks of policy slippage remain substantial.
The new team is untested, while the economic and international policy
challenges are significant and pressing.
The ratings on Turkey are supported by progress
in economic stabilization. The tight fiscal policies of the past 18 months
and the ongoing clean up of the banking system have created an opportunity
to put the Turkish economy back on track toward sustainable growth. The
ratings are also supported by a sustainable external position. The current
account is showing a small deficit of about 0.5% of GDP this year, which
should widen somewhat in 2003.
"The stable outlook reflects expectations
that the new government will not make major economic policy changes and
will remain firmly committed to the present IMF program," said Mr.
Al-Yousuf. "Success in obtaining a quick completion of the fourth
review under the present IMF program and a timetable for EU accession would
also be a significant improvement, as it would provide an important anchor
for AKP's secular domestic position, the government's reform efforts, and
in case a war in Iraq heightens investor risk aversion again," added
Mr. Al-Yousuf. Top
