Standard and Poor's on Monday downgraded its long-term credit rating on Turkey despite International Monetary Fund-endorsement of a new economic reform plan. "The downgrade reflects Standard and Poor's view that, notwithstanding the announcement of a new International Monetary Fund-supported fiscal program, Turkey's ability to secure budget financing on terms adequate to stabilize the public debt stock, inflation and the exchange rate remains highly uncertain," the agency said in a statement here.
As a result, Turkey's long-term sovereign credit rating was lowered by Standard and Poor's from single B to single B minus. The agency maintained its C rating on short-term sovereign credit and lowered its single B rating on foreign currency unsecured debt to single B minus.
The IMF, the World Bank and the US government on Sunday welcomed the long-awaited announcement the previous day by Turkish Economy Minister Kemal Dervis of a program to cut public spending, restructure the weak banking system and accelerate privatization.
The new plan came after a cash crunch, triggered by fears of political instability, forced the government to float the lira on Februry 22, disrupting a three-year IMF-backed reform scheme. Since then the currency has lost some 47 percent of its value against the dollar, pushing prices up and triggering street protests by the disgruntled public. The latest reform plan was seen as essential to Turkey's efforts to secure $10 to $12 billion of foreign assistance.
But according to Standard anbd Poor's the government will be hard pressed to "reverse the nation's debt dynamics without exacerbating growing political stress." It warned that while Turkey may now receive a credit package of about $2.6 billion from the IMF in mid-May it was unlikely to find additional financing from other official creditors in the next few months.
In that case, according to Standard and Poor's, Turkish authorities would be forced to rely on financing from the domestic banking system, which itself would require support from the central bank. Such a chain of events, the agency said, would weaken the country's international reserves and lead to a further depreciation of the lira. —(AFP)
© Agence France Presse 2001
© 2001 Mena Report (www.menareport.com)