Turkey criticizes Moody’s, which lowered its rating in “junk” – Invest

ISTANBUL, September 25 (Reuters) – The Turkish government has criticized on Saturday the decision of the rating agency Moody’s to downgrade the sovereign rating of the country in the category of speculative (“junk”) because of concerns for the rule of law and of the risks of a slowdown of the economy.

Moody’s has brought back Friday night to the note of long-term debt of turkey to Ba1 against Baa3, adding that the perspective of this note was stable, which rules out the possibility of a new change in the short term.

This lowering could deter some foreign investors are turning towards Turkey as the country is dependent on investment flows to finance its current-account deficit, one of the largest in the G20.

The Prime minister, Binali Yildirim, said that the decision by Moody’s showed that the agency was not impartial and that it did not its decisions solely on economic criteria.

“We do not believe that these judgments are extremely biased. We believe that they aim to create a certain image of the Turkish economy”, he said to the press.

The Turkish lira has lost ground after the announcement of Moody’s, to 2,966 per dollar against 2,954 Friday, before the decision of the agency.

Standard & Poor’s had already downgraded two levels in its note to Turkey shortly after the attempted coup of July 15.

A portion of the investment funds exclude investing in countries that are not rated in the investment category by at least two major rating agencies, Fitch Ratings is now the only now his note of Turkey in the category “investment grade”, and must proceed to a new assessment by the beginning of next year.

CONCERNS AFTER THE COUP ATTEMPT

“the motives for deterioration are (..) the increased risks related to the importance of the external financing needs of the country (and) a weakening of some fundamental credit previously favourable conditions, in particular the growth and strength of institutions,” said Moody’s in a statement.

“The government’s response to the failed attempt of coup raises new concerns about the predictability and efficiency of government policy and the rule of law.”

In July, the u.s. bank JPMorgan had stated that investors could sell for 10 billion dollars (8.9 billion euros) of sovereign bonds and Turkish firms if the country’s rating was again downgraded by a major agency.

Turkey was in need of 200 billion dollars of investment flows per year to finance its current-account deficit and service its debt in foreign currency.

Ankara could choose to raise its interest rates to attract investors, but Thursday, on the contrary, the central bank reduced its main interest rate, neglecting the rise of inflation after the repeated calls of president Recep Tayyip Erdogan in favour of a reduction in the cost of credit.

Erdogan has repeatedly criticised the bias of the ratings agencies, going so far as accuse in July S&P to be row as well as the organizers of the attempted military coup.

The growth of turkey has slowed down to 3.2% in the second quarter and the government could revise downward its forecast for this year, currently fixed at 4.5 per cent, to integrate the impact of political unrest on the activity.

Moody’s believes that the gross domestic product (GDP) in Turkish is expected to grow 2.7% on average over the next three years, compared with 5.5% per year over the first four years of the decade.

(Ayla Jean Yackley; Marc Angrand for the French service)