Turkey welcomes 'late' investment note by Moody's

ISTANBUL / NEW YORK

Economy Minister Zafer Çağlayan and Deputy Prime Minister Ali Babacan said that the credit ratings increase was long due.

Turkey earned its second investment-grade credit rating on May 16 with an upgrade to Baa3 by Moody’s Investors Service, which has been awaited and accepted as “already deserved” by the country for a long time. Baa3 is a factor that now allows more investors to put money to work in an economy whose rapid growth has recently tapered.

Moody’s said the decision to lift the rating one notch and put a stable outlook on the credit was based upon structural improvements in the economy as well as its public finances that will better insulate it from external shocks.

“Since the beginning of 2009, Turkey’s debt burden has fallen by 10 percentage points to a manageable 36 percent of GDP, and Moody’s expects this decline to continue in the coming years,” the statement said.

Moody’s decision brings it in line with Fitch Ratings, which put Turkey at investment grade BBB-minus with a stable outlook in November. Standard & Poor’s rates Turkey one notch below investment grade at BB-plus with a stable outlook.

“I think something to bear in mind with Turkey is that while the economic and public finance metrics are generally stronger than those of Baa3-rated peers, balancing it out are the external vulnerabilities that are generally greater than those of other Baa3 issuers,” Sarah Carlson, a senior credit officer with Moody’s in London, said in a telephone interview. “And those external vulnerabilities do take time to address through the kind of structural measures that the government has taken,” she added.

Earlier that day, Turkey’s central bank cut its benchmark interest rates by 50 basis points in a bid to stimulate an economy that has experienced rapid growth but faltered in the past year.

‘Decision correct but late’

Immediately following the upgrade, Turkish Deputy Prime Minister Ali Babacan, issued a statement in Turkish saying the upgrade brings market indicators and credit rating more in line.

“This decision is as correct as it is late. Due to the right steps that we have taken on the economy, our country’s indicators in global markets have for a long time been on a similar level as those countries with investment-grade credit ratings,” Babacan said.

Finance Minister Mehmet Şimşek, in an email to Reuters said: “This rating will increase access to international financing for our Treasury and our companies, reduce the burden of borrowing and will positively contribute to our country’s long-term growth.”

The Minister of Technology Nihat Ergün stated that the funds, which had not been invested in Turkey due to their regulation, would be used to make long-term investments in Turkey after this rating upgrade. Ergün added that they were expecting that notch upgrading would continue in advance.

“Foreign investments that come to Turkey could rise from $10 billion to $30 billion or $40 billion. Economic conditions and international conjuncture are available for it,” said Erdal Tanas Karagöl, the economy director of Turkey’s Foundation for Political, Economic Social Research (SETA) in an interview with Anatolia news agency.

Moody’s upgrade of Turkey happened while Turkish Prime Minister Recep Tayyip Erdoğan is visiting the United States for talks with U.S. President Barack Obama.