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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


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