London-based rating agency Fitch ICBA downgraded Turkey's long-term credit ratings Monday, April 1, blaming slow progress in drawing up a new economic stabilization program. The long-term local currency rating was cut to "B" from "B-plus" and the long-term foreign currency rating was reduced to "B-plus" from "BB-minus", it said in a statement.
"This action reflects the slow progress the authorities have made in formulating a credible revised stabilization program since Turkey abandoned its exchange rate peg in late February," it said. Financial turmoil forced the government last month to dismantle a crawling peg for the Turkish lira, which has since plunged in value against the dollar by about 30 percent.
The decision disrupted an IMF-backed anti-inflation program in place since December 1999 and pushed inflation up, making the revision of macro-economic targets inevitable. Last month, Turkey and the IMF agreed on the broad framework of a revised plan, which is expected to be finalized by mid-April and submitted to the Fund for a final approval in late April.
In Washington to meet US and International Monetary Fund officials, Economy Minister Kemal Dervis asked for $10-$12 billion in foreign aid to help overhaul the battered economy. But the IMF said financial assistance to Turkey would be determined by the content of the new economic reform package.
Fitch said it welcomed a Turkish statement on March 20 outlining the general framework for a new program, especially its emphasis on restructuring banks, dealing with state banks' overnight liquidity problems and accelerating privatization. "But the framework lacks detail and, in its present form, is unlikely to restore the confidence of international investors or be sufficient to secure the additional official external financing that the authorities are seeking," it said. The political situation was not helping, Fitch said.
"The damaging lack of urgency in putting a more convincing program in place reflects difficulties in achieving political consensus and the absence of a robust policymaking framework in Turkey," the statement said. Political leaders had been sending mixed signals about the prospects for expediting a new program in the next few weeks, which would be necessary for an outline deal with the IMF, the agency added.
"While there have been calls from some party leaders to rally behind the economy minister's proposals, Fitch judges that there is still significant political disunity among the coalition." Speed was critical. "While the need to garner support from across the political spectrum is important for the political credibility of the new program, time is of the essence," Fitch said.
Domestic debt rollovers were expected to be quivalent to three percent of gross domestic product (GDP) in May and five percent of GDP in June, the agency warned. "In the event that a new program—and any associated official external financing—is not in place by then, the government would likely continue to face very high interest rates on its borrowing," Fitch said.
Those risks justified the local currency downgrade, it said. Meanwhile, Turkey's external financing had been deteriorating with offiical reserves dropping to about $19 billion from $28 billion in mid February. Banks' external debts now enjoyed a sovereign guarantee, further increasing sovereign liablities, it added. Those considerations, combined with the absence of a timely and credible response to the crisis, had led to the foreign currency downgrade, the statement said. —(AFP)
© Agence France Presse 2001
© 2001 Mena Report (www.menareport.com)