Erdogan furious over Turkey rating downgrade
Turkey's prime minister accuses ratings agency Standard & Poor's of bias for lowering country's long-term credit outlook
Turkey's Prime Minister Recep Tayyip Erdogan on Thursday accused ratings agency Standard & Poor's of bias for lowering the country's long-term credit outlook on the same day it upgraded Greece's credit grade.
S&P on Tuesday had dropped Turkey's outlook from positive to stable, which mean it is no longer considering an upgrade of its credit rating, and cited concerns over government debt. The same day it had upgraded the ratings of neighboring Greece after Athens completed a major debt writedown with private creditors.
The government of Turkey, a traditional rival to Greece, was less than pleased.
"'From now on, we do not recognize you as a ratings agency,'" said Recep Tayyip Erdogan, who said S&P's ratings decisions this week were "ridiculous."
S&P explained Wednesday that despite a terrific decade of economic growth and development, several structural weaknesses continue to put pressure on Turkey.
"Its economy is fairly closed, with exports accounting for a small share of GDP (about 24 percent in 2011)," S&P said in a statement. It noted the current account deficit is large and highly dependent on short-term financing from outside Turkey.
As a result, Turkey is particularly vulnerable to sudden financial account outflows and refinancing risks, S&P warned.
It recognized, however, that Turkey's revision of its commercial code and capital markets law this year were crucial reforms and would make companies financially more transparent and enable market participants as well as rating agencies to better understand corporate risk.
"It's almost revolutionary regulatory reform," it said. "These changes could set the stage for the creation of a local investor base, the development of domestic capital markets, and even more growth in the future."
Turkey estimates that economic growth will slow to 4 percent this year from about 7.5 percent last year. But it forecasts GDP growth will slow to between 2 percent and 2.5 percent in 2012. The International Monetary Fund, meanwhile, has cautioned against rising inflation.
Turkey's statistics institute said Thursday that consumer prices rose 11.1 percent in the year to April, while producer prices grew 7.65 percent.
