Moody's to keep Turkey at investment grade: Experts

By Bahattin Gonultas and Fatih Erkan Dogan

ANKARA (AA) - International rating agencies Moody’s and Fitch will not opt to cut Turkish economy's credit rating on Friday, as the negative impact of the July 15 defeated coup attempt on the economy has been minimal and its macroeconomic indicators are still positive, senior economists said Thursday.

Experts said that Moody’s will not need to downgrade Turkey’s credit rating in its upcoming rating review on Friday as measures taken by the Turkish economic administration after the foiled coup let the economy pass through the crisis with only minor scratches.

Moody’s rating agency announced on July 18 that it would review Turkey’s rating for a possible downgrade in wake of the attempted coup.

Moody's will assess Turkey's rating this Friday, Aug. 5, to decide whether to keep the country's Baa3 credit rating, which is an investment grade. Fitch is also scheduled to release its assessment on Turkey on Aug. 19.

For Turkey, loss of an investment grade rating could mean investors would be forced to sell off the county's bonds, as some investment funds are not mandated to hold non-investment grade-rated papers.

- 3 key points of consideration

Nilufer Sezgin, chief economist at Istanbul-based Is Portfoy, said that Moody’s announced on July 18 that it would make its decision on Turkey in light of three key points.

"The first of these was a slowdown in domestic demand in the long term. The second criterion was the restriction of access to external financing. And the third criterion Moody’s pointed out was an emergence of inertia due to declining political predictability and efficiency," she said.

However, Sezgin emphasized that developments in key areas observed by Moody’s were so far mostly positive.

"On the other hand, to reach a clear decision over the course of growth, more time is needed. A hasty decision from Moody's with the data set currently available would increase criticism," she added.

The country's top economic officials have been trying to reassure investors that the July 15 defeated coup will not cause permanent damage to the economy. They said that they had a positive meeting with Moody's on July 28.

On the second day after the thwarted coup, Turkey's Central Bank acted by cutting commission on daily liquidity options for banks to zero and providing unlimited liquidity to maintain financial markets.

The country's main stock exchange, Borsa Istanbul, and other finance facilities in Turkey opened as scheduled on Monday, July 18 and have been operating since that time uninterrupted despite the coup bid.

- Moody's to examine Turkey's long-term data

“From an economic point of view, there is not a situation that will require a downgrade,” said Ali Kirali, economic research and strategic planning director at Odeabank.

Increased risk premium and global uncertainties create vulnerability over the country's external financing needs, according to Kirali.

"Beside that, weak tourism revenues due to geopolitical challenges and terror as a global phenomenon come to the fore as Turkey’s most important vulnerabilities weighing on its current account deficit and external financing costs,” Kirali added.

Moody's would prefer to examine long-term data flow rather than make a hasty decision with insufficient data, said Bora Tamer Yilmaz, an economist at Ziraat Invest in Istanbul,

“Turkey's human capital also lets the country come to the fore compared to other economies. Young people keep domestic demand vivid and support the country’s growth. One weakness of Turkey is its savings deficit. The low savings rate forces Turkey to seek external funding. The cost of funds from abroad, which depends on the market sentiment and risk premium, puts the country’s foreign trade balance into the fragile side of Turkey’s economy," Yilmaz said.

- Coup bid's damage to the economy not permanent

The government took the first steps toward creating a sovereign wealth fund on Tuesday in order to keep growth on track and limit economic damage from the July 15 coup attempt.

Under the proposal, the government will establish a company called Turkiye Varlik Yonetimi AS (TVY), or Turkey wealth fund, with 50 million Turkish liras ($17 million) that will be paid out of the country's privatization fund.

Finansinvest Chief Economist Burak Kanli echoed Yilmaz, saying the rating agency would need at least three months to get enough data to assess the impact of the July 15 coup attempt on the Turkish economy.

“The course of events in the field of politics and economics in the coming period will be critically important. I think there may be some short-term impact of the coup bid on the economy but they will not become permanent. Therefore I believe the possibility of retaining Turkey's credit note is much higher [than a cut]," he added.

- ‘Ankara never takes any steps to hurt investors’

On Tuesday, Erdogan assured international investors that declaring a state of emergency was aimed at administering the law towards coup plotters and did not concern investors in the slightest.

"I speak to international investors, don't be concerned about Turkey, this country is safe and secure," Erdogan said. "We never take any steps to hurt or harm investors. I personally make sure of this," he added. "There are no interventions in the economy under the state of emergency."

Foreign investors have poured more than $150 billion into Turkey since 2003, including over $16 billion last year, according to the Economy Ministry.

International rating agencies will tarnish their own reputations if they announce negative ratings for Turkey’s economy, Erdogan’s chief economic adviser told Anadolu Agency on Monday.

“I believe these agencies will not declare a negative rating that may disturb their reputation considering the positive macroeconomic indicators of Turkey’s economy,” said Cemil Ertem.