By Jeremy Gaunt and Gareth Jones - Reuters

London/Ankara - Turkey has failed to meet the strict investment standards of influential US pension fund Calpers, but other investors said yesterday the EU candidate country has been making good progress in a number of areas.

Improvements have come on both the political and economic front, they said, although the state of Turkish corporate governance remains very poor.

On Tuesday Turkey, a major debtor of the IMF, was dropped from a list of stock markets that — pending final approval — the $164 billion California Public Employees’ Retirement System can invest in.

Argentina and Peru also failed to pass muster in a test based on criteria that include market efficiency, corporate governance, political stability and human rights.

Investors — though reluctant or unwilling to comment on Calpers — said Turkey had been making great strides in both political and economic reforms as it worked toward European Union membership.

“Macroeconomic improvement seems to be continuing and also the talks on Cyprus, smoothing the way for (EU) accession, are progressing,” said Philip Ehrmann, emerging markets chief at Gartmore Investment Management.

Others put Turkey’s failure to meet Calpers’ standards down to the methodology the giant fund’s advisers use to measure market capitalization.

Turkey scored low because the data did not include the 111 percent rise in the stock market in 2003, Roger Monson, strategist at CAIB International Markets said in a research note.

“Turkey should look much better in a year’s time, which will include 2003’s values,” he said.

Analysts said, however, that Turkey’s record of corporate governance — a major Calpers consideration — left much to be desired.

“The standards are very low,” said Maarten de Kok, senior portfolio manager for investor Robeco’s emerging market fund.

Turkish companies have been criticized for lack of disclosure and many are tightly run by families, two factors which often drive away investors seeking well-run firms.

In an initial reaction from Ankara to the Calpers move, a Turkish government official told Reuters that Calpers information about his country appeared to be “obsolete.”

“Confidence is coming back very strongly,” he said. “Investors acting on the basis of this report will lose because Turkey is a big, dynamic market.”