ECONOMY

Turkey risks further credit downgrade, says S&P official

MILAN (Reuters) – Turkey, stung by the loss of expected US funding, risks a debt downgrade by Standard & Poor’s if the government fails to show fiscal progress soon, an executive at the ratings agency said yesterday. «The rating will be in trouble if it becomes apparent in the the next couple of months that the government’s fiscal policy has begun to unravel,» David Beers, managing director of sovereign ratings at S&P, told Reuters. Turkey’s Parliament recently refused to allow access to US troops heading for the war in Iraq, opening up its air space instead. The White House then ruled out a financial package for Turkey worth $30 billion in grants and loan guarantees. Beers said in an interview that Turkey’s B-minus rating – already six notches under investment grade – was closely linked to implementation of a proposed 2003 budget, agreed upon by the International Monetary Fund and which foresees a primary budget surplus equivalent to 6.5 percent of gross domestic product. S&P’s outlook on Turkey is currently stable. Turkish bond prices have fallen heavily recently and their risk premiums have widened, hurt by concerns about the government’s budget challenges and the impact of war in Iraq. But the evaporation of the financial aid could strengthen members of the Turkish government who have argued in favor of dealing with the country’s fiscal problems, Beers said. «Obviously, it was a sobering experience for the government party and hopefully that will strengthen the hand of of those who have argued for Turkey to address its fiscal problems.»