Fitch: Current level of protest in Turkey not a rating threat, much depends on how government responds to the protests.

By bne IntelliNews June 7, 2013

The anti-government protests in Turkey are not a threat to the sovereign's 'BBB-' rating at present, the level of unrest is well within the tolerance of political stability embedded in the current rating, and the economic impact so far is minör, Fitch said in a commentary on Friday.

Fitch upgraded Turkey to 'BBB-' from 'BB+' in November 2012. Moody’s upgraded Turkey’s government bond ratings by one notch to Baa3 -the lowest investment grade- from Ba1, and assigned a stable outlook earlier this year. Now only Standard & Poor’s rates Turkey one notch below investment grade at BB+ with a stable outlook.

Nonetheless, much will depend on how the authorities respond to the protests as poorly handled, the situation could escalate, with adverse consequences for the economy, Fitch commented.

Low political stability has long been a feature of Turkey's sovereign credit profile and is already considered weaknesses in Fitch sovereign rating assessment. With this in mind, it is perhaps not surprising that the protests, in response to the perceived authoritarian tendencies of PM Recep Tayyip Erdogan and his AKP have emerged ahead of a heavy election schedule, Fitch said.

Economic Risks

Persistent political and social unrest could deter tourism, destabilise short-term capital inflows, drive up inflation and damage economic growth, longer-term aspirations to attract more FDI could also suffer a setback, Fitch said. If such developments were to occur and have a material adverse effect on the economy, the unrest could exert pressure on the sovereign rating, according to the rating agency.

Parallels with Arab Spring should not be overplayed

Parallels with the Arab Spring should not be overplayed, according to Fitch. So far, the demonstrations have attracted educated, middle-class Turks rather than disaffected workers or the unemployed while the AKP has democratic legitimacy and a strong parliamentary majority, good poll ratings, and has delivered much of its original mandate over three electoral terms, the rating agency explained. Similarly, the demonstrations have not been on the scale that would bring about the kind of economic dislocation that has occurred in parts of the Arab world in recent years, the statement added.

Government may have to reassess constitutional reforms, presidency

Nevertheless, the protests may yet cause the government to reassess its stance on constitutional reform and enhanced powers for the presidency, and advocates of a more cautious approach should get a greater hearing, Fitch said.

Turkey's Ratings
Fitch BBB-
Moody's Baa3
Standard & Poors' BB+
JCR BBB
Source: Rating Agencies  

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