The credit rating agency Moody's downgraded its outlook rating for currency and deposit debt for Turkey from positive to stable on Wednesday, February 21. The agency said that it had downgraded the outlook because of turbulence on Turkish financial markets last week.
In a statement issued after the Turkish government had decided before dawn to end a peg arrangement for the lira against the dollar, allowing the lira to depreciate, Moody's said that although the turbulence had been caused largely by political factors, it showed that the credibility of the economic stabilization program had not been established following a banking crisis in November.
The turmoil demonstrated that the program was very sensitive to political shocks, and even by debate which did not concern direct economic adjustment. Turkey might experience moderate growth in the second half of the year which would reduce or remove the budget deficit for the time being. But tension within the government could only increase, it said.
Additionally, Turkey a downgrade of its debt ratings on Friday, when Standard and Poor's responded to its effective devaluation of the lira by revising its assessment of the country's creditworthiness. Standard and Poor's said the removal of the exchange rate peg had left Turkey without a credible monetary policy and would have a knock-on effect on bank balance sheets, government debt and banking sector restructuring.
"Until a comprehensive new stabilization program is unveiled and supported by the IMF the Central Bank will not have a credible monetary policy." Standard and Poor's Corp said it has lowered its long- and short-term issuer credit ratings for Turkey to B/C from B-plus/B. The foreign currency senior unsecured rating was lowered to B from B-plus.
It said the financial crisis was "causing a significant deterioration in the public finances and the balance sheets of the banks and their customers. The crisis is likely to lead to a spiralling of public debt as the cost of government borrowing increase." The ratings agency added that it could lower its ratings again "if the financial crisis continues for much longer and/or leads to a political crisis that further weakens the ability of the present coalition government to deal with it."
London-based credit rating agency Fitch ICBA had downgraded Turkey's long-term local currency rating on Thursday to B-plus from BB and put the rating under review for a possible downgrade. —(AFP)
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