Moody’s values fiscal discipline
Posted by meb at April 7th, 2008
Moody’s Ratings Agency kept Turkey’s outlook the same despite Standard&Poors’ (S&P) downgrade from “stable” to “negative” Thursday.
Maintaining Turkey’s “stable” outlook in a report published Thursday, Moody’s presented a different picture reducing the role of politics and shifting the focus to fiscal discipline.
“Moody’s outlook on Turkey will not change even in the worst scenario with the closure of the ruling Justice and Development Party (AKP) and formation of a new Parliament including a multi party-coalition just as in the past,” Kristin Lindow, head of Moody’s Turkey department, told business daily Referans.
Unlike other credit rating agencies, Moody’s did not downgrade Turkey even during the 2001 economic crisis, she said. “We already knew that liquidity would dry up and were aware of Turkey’s current account deficit problem. Therefore, we do not need to change outlook or rating, said Lindow, expressing her prediction on the continuation of rigid fiscal discipline even when a new government comes in.
Moody’s said in its report that Turkey’s credit rating may face “downward pressure” should the global credit crunch affect the debt ratio of the country dramatically.
Inflation crucial:
Neither domestic risks nor credit crunch experienced in overseas markets are the factors to be considered alone for a re-evaluation of Turkey’s outlook and rating, said Lindow, adding that fiscal discipline is more important than everything.
The Central Bank’s position about controlling inflation is crucial, Lindow said and added, “inflation is not in a condition to get out of control at present. It seems to be under the control of the Central Bank for the time being, as interest rate cuts came to a halt.”
Turkey will have to deal with a current account deficit problem for a while, she said. “Due to liquidity shrinkage, you will face a decline in foreign hot cash inflow. However, this does not mean that hot cash flow will reverse and come to a total halt. Even now, hot cash inflow is still surpassing the hot money that escapes [from the country],” she said. “The condition you are facing for the last few months is only related to the change in the nature of foreign financing. Sudden hot cash outflow will not be experienced in the market as long as investors are sure of economic policies, according to Lindow.
Source: Turkish Daily News
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