Moody's Annual Report On Turkey

TURKEY'S B1 RATING REFLECTS STRONG REFORM ANCHORS ALONGSIDE DEBT CONCERNS

NEW YORK/ANKARA - In its annual report on Turkey, Moody's Investors Service said that Turkey's B1 rating reflected strong reform anchors alongside debt concerns.
In its report, 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 report says, ''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 (EU) and the continued involvement of the International Monetary Fund in Turkey's structural economic adjustment, both before and since the 2001 crisis.
It continues, ''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,'' the report states.
The report also points 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,'' it stresses.

-FOREIGN TRADE AND CURRENT ACCOUNT DEFICIT WARNING-
The report says, ''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.''
In its report, Moody's also 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.
(BRC-ULG) 22.10.2004