Standard & Poor (S&P)'s Ratings Services said its B- ratings on the Turkey are not affected by further delays in reaching an accord with the US on military and economic assistance.
"The very narrow defeat on March 1 of a government motion to allow the deployment of US and Turkish troops into northern Iraq was a surprise, but it is only expected to delay the eventual approval of the US troop deployment and the release of a yet-to-be-finalized US aid package to the Turkish government," said S&P's credit analyst and director of sovereign ratings for the Middle East and Africa, Ala'a Al-Yousuf.
"The stable outlook on Turkey adequately reflects the mixed developments and prospects in the political and economic spheres."
The Justice and Development Party (AKP) government is likely to resubmit the motion to parliament after a by-election in Siirt scheduled for March 9, in which AKP chairman Recep Tayyip Erdogan is expected to be elected. Following this by-election, Erdogan is expected to take over as prime minister from Abdullah Gul, thereby addressing a political anomaly.
The second time around, parliament is expected to approve the deployment of US and Turkish troops and hence unlock US financial assistance. The aid package is expected to amount to $24 billion, six billion dollars in in grants and the rest in loan guarantees, and is expected to reduce the government's borrowing requirements, thereby leading to lower interest rates.
In addition, the government seems to have finally reached an agreement with the IMF on a program for 2003 targeting Gross National Product (GNP) growth of five percent and a primary public sector surplus of 6.5 percent of GNP. This fiscal target is to be achieved through a combination of expenditure cuts amounting to 9.8 quadrillion Turkish lira ($5.9 billion) and revenue-raising measures amounting to TL 5.9 quadrillion.
As a result, the long-delayed fourth review of the standby arrangement and the associated release of a tranche of $1.6 billion in credits could be approved in early April, strengthening government finances and market confidence during what could prove to be turbulent times. Moreover, the government is making progress in its discussions with the World Bank on the release of tranches from existing loans and the approval of further structural adjustment
loans.
Turkey's economy is highly vulnerable to external current account shocks and, particularly, interest rate shocks that could put its huge debt burden on a spiraling path. So far, financial markets have reacted to recent mixed news with relative calm. Interest rates and the lira exchange rate have remained broadly unchanged despite earlier volatility.
"As always, the path of real interest rates in Turkey--and hence prospects for reducing public debt--will depend, in part, on the government's ability to maintain domestic political stability and stay the course on its IMF-supported program, and, in part, on external developments out of the government's control," said Al-Yousuf. — (menareport.com)
© 2003 Mena Report (www.menareport.com)
