JCR upgrades Turkey's rating

The Japan Credit Rating Agency (JCR) upgraded Turkey's rating on the bonds and local currency long-term senior debts of the issuer from B (+) to BB (-) on Thursday.In a statement it released, JCR said that the ratings reflected the political stability the current government had attained with its control of more than two thirds of the parliamentary seats, the progress it had made on structural reforms based on a standby credit agreement with the International Monetary Fund (IMF), the macroeconomic stabilization brought by the reforms, and the fact that the European leaders, in evaluation of the country's reform efforts decided at their summit in December 2004 to initiate European Union (EU) membership talks with Turkey on October 3rd, 2005.The JCR noted, ''The rating outlook remains positive. The Turkish government has agreed with the IMF on a new three-year standby credit facility. The conditional agreement calls for the government to submit to the parliament two bills on the banking and the social security reform and to enact the bill on revenue administration. The execution of the standby credit has been delayed due to slow progress in legislation of the three bills. However, JCR expects that the government will eventually move to enact the bills to pave the way for a formal agreement with the IMF as it is fully aware of the importanceof improving market confidence through the implementation of structural reforms.'' ''Meanwhile, the European Commission has urged Turkey to sign the Protocol on the adaptation of the Ankara agreement prior to the start of accession negotiations. How Turkey will address this matter remains to be seen as it would be the first pact between Turkey and the EU since Greek Cyprus joined the EU in May 2004. The Turkish government will aim to solve the issue of Cyprus, which remains divided between the North and the South. It is not easy to resolve the issue which has a complicated background. And it is hard to predict how it will affect Turkey's membership negotiations. However, the Turkish government is firmly resolved to attain the country's EU membership. It will continue its efforts to that end, although there might be some twists and turns in the process,'' the JCR stated.It went on saying, ''if Turkey can carry out structural reforms on the strength of its new standby credit agreement with the IMF and various other reforms aimed to expedite its EU membership, it will be able to continue improving its internal and external confidence, maintaining a virtuous circle of subdued inflation expectation and falling real interest rates, which in turn will spur private consumption and investment. It will also be able to expect an increase in FDI inflow, which is important to ensure sustainable development of the Turkish economy. On the other hand, the ratings are constrained by the country's weak fiscal position and external debt burden, despite their improving trend in recent years. JCR will closely watch how the political situation in Iraq will affect Turkey as that could become another constraining factor.''In March 2004, JCR confirmed Turkey's B (+) rating and turned its outlook to positive.Â