New York, October 22, 2004 -- In its annual report on Turkey, Moody's
Investors Service says its B1 country ceiling for foreign-currency bonds
and stable outlook takes into account the country's ongoing economic and
political reform along with its significant debt burden. The government's
lira-denominated debt is rated B2.
The rating agency report says that these reforms have been anchored by
the government's aspirations to join the European Union and the continued
involvement of the International Monetary Fund in Turkey's structural
economic adjustment, both before and since the 2001 crisis. At the same
time, the ratings remain constrained by the high -- although declining --
public and external debt service burden.
"Turkey is at a critical juncture in its modern history because of its
recent political stability, with the payoff for its EU prospects and
tight fiscal and monetary policies coming in the form of single-digit
inflation for the first time in more than 30 years," say Moody's
analysts Kristin Lindow and Joan Vidra, authors of the new report.
The analysts also point to particularly robust economic growth this year
for the third year in a row, with private investment up by two-thirds in
the first half compared to 2003, booming consumer demand, and rapid
productivity gains. The fiscal deficit is being trimmed, mainly because
of declining interest rates. The government's newly-announced 2005 budget
includes a commitment to a prudent fiscal stance again next year that
should keep the debt to GDP ratios on a declining trend. A medium-term
economic program is now being finalized, which would further consolidate
this progress by focusing on deeper structural adjustments.
Still, the Moody's analysts caution that fast growth has been associated
with a serious widening of the trade and current account deficits.
"Given the vulnerability posed by the explicit and implicit linkage of a
large portion of the government's debt to the exchange rate, the
expanding deficits raise concerns about the negative consequences of a
potential devaluation," says Ms. Lindow. "However, the rise in imports
is attributable to one-time as well as cyclical factors, so that a hard
landing may be avoided with appropriately strict monetary and fiscal
measures, moderating economic activity, and added export capacity."
Moody's considers Turkey's EU candidacy to be a valuable driver for the
country's long-term credit standing, with even just the prospect of
joining serving as an important incentive for further modernization of
the economy and the political system. However, the European Commission
has said that its membership negotiations with Turkey will be open-ended,
therefore the accession process is likely to be protracted, and probably
not without its occasional twists and turns.
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.