The decision of the Turkish Constitutional Court that the ruling Justice and Development Party (AKP) should not be closed for purportedly undermining the country’s secular constitution “removes the near-term risk of a chaotic political scene,” according to Moody’s Senior Vice President Kristin Lindow.
“The challenges that the country faced when the case was filed in March have not changed, so the outlook on the government’s Ba3 debt ratings remains stable,” the Moody’s executive added.
The large current account deficit, relatively compressed public debt burden, and privatization are some of the areas where reforms had largely stalled, for domestic reasons such as last year’s elections as well as unfavorable external circumstances. Moody’s believes the catch-up will be that much harder because of the delays.
While Turkey’s institutions have demonstrated increased independence and maturity with the decision of the Constitutional Court, the status quo now is a standoff between the courts and the AKP, since only one vote could have changed the outcome and 10 out of the 11 judges agreed that the AKP should be severely censured and that its public funding should be halved.
The Moody’s report concluded that political uncertainty and even volatility have obviously not disappeared in Turkey, with negative financial and economic consequences always a risk.
“For these reasons, the current ratings and stable outlook, which has a roughly 12- to 18-month time horizon, appropriately balance the gains in credit strength achieved in recent years against the significant challenges that continue to face the country.”
Financial Mirror, August 01, 2008