Debt risk seen in Turkey

LONDON – The large proportion of foreign exchange-denominated and floating-rate debt exposes Turkey to sudden changes in levels of confidence, a senior analyst from credit agency Fitch Ratings said yesterday. Some 55 percent of Turkey’s debt was floating-rate in March 2002, compared with 36 percent at the end of 2000. During the same period, foreign exchange-denominated debt rose to 28 percent from 8 percent of total debt. «The structure of the debt lends itself to getting out of hand,» said Nick Eisinger, Fitch’s sovereign analyst for Turkey at a conference organized by the agency. An increase in rates very quickly translates into higher financing costs, he said. Turkey experienced a crisis of confidence in February 2001, sparking a liquidity crunch, which derailed its then International Monetary Fund programme. The country is now trying to implement a $16-billion restructuring and rescue program. High domestic debt rollover schedules were in large partly to blame for last year’s crisis. «The treasury financing outlook has benefited by extending along the yield curve, but most bills are still below 10 months in maturity,» said Eisinger. He added that as the government had more success in funding itself, buyers were moving into fixed-rate lira debt, reducing the country’s vulnerability, he said. The country typically had to roll over 85 to 90 percent of its debt in the domestic market at present which, while high, was better than the upward of 100 percent that had to be refinanced during many of 2001’s auctions, said Eisinger. The analyst also said he thought Turkey would meet its 2002 growth target of 2.5 percent to 3 percent gross national product increase, but hoped that Turkish growth would be a comparatively moderate 4 percent in 2003. «It would be worrying if Turkish growth was 7 or 8 percent, or greater. It would suggest that Turkey is going back to the boom-bust era,» he said. The Organization for Economic Cooperation and Development forecasts Turkish growth at 3.5 percent in 2003, while the Turkish government forecasts growth of 5 percent. In 2001, GNP shrank by 9.4 percent due to the consequences of the liquidity crisis. Meanwhile, in a related development, a Reuters wire from Ankara yesterday said Turkey plans to borrow $52.6 billion in domestic debt this year and to service $75.2 billion of domestic debt. According to information published on the website ahead of a speech by Treasury Undersecretary Faik Oztrak in London later yesterday, Turkey plans to service $9.7 billion of external debt this year and to borrow $3.6 billion on international markets. Of the total domestic borrowing planned, the Treasury aims to borrow $45.3 billion from the market via debt auctions and $7.3 billion from public institutions. (Reuters)