For the first time in nearly two decades Turkey secured its first investment-grade credit rating. While you won't mistake Germany for Turkey, none the less, with all the challenges facing the European Union, I think it is quite interesting that Turkey and Bulgaria are doing pretty darn good. Is there a lesson here?
Following is an article from the Wall Street Journal, Turkey Can Make the Grade for Good
"November isn't usually a great month for turkeys. But for the country Turkey, it couldn't have started any better: ratings firm Fitch has upgraded its sovereign debt to investment grade for the first time. The move caused yields on Turkey's two-year bonds to fall by 0.25 percentage point and Turkey's stock market to rise 1.8% on Monday. Still, the excitement may not prove lasting—if only because investors are already ahead of ratings firms in seeing Turkey as a safer bet than some of its more vaunted European peers.
Fitch's move looks justified based on Turkey's fiscal position. Its level of debt to GDP should fall to 37% by the end of 2012, Fitch estimates—far lower than the 87% average for euro-zone countries last year. The average maturity of its debt has increased to 4.5 years from 3.5 years in 2009. Since the Turkish lira's 40% devaluation in 2001, Turkey's economy has proved reasonably stable, though it did contract 4.8% in 2009. The Fitch upgrade should help create a virtuous loop of greater investor confidence: Credit default swaps on its five-year bonds have been trading at a far lower premium than countries like Italy and Spain for some time.
Still, Turkey isn't without vulnerabilities, including inflation running at 7.8%. Its current-account deficit remains high, though it is expected to narrow to 7.3% of GDP in 2012 from 10% in 2011. Its banking system, meanwhile, is reliant on external funding due to a low savings rate. Banks' short-term external debt has doubled to around $70 billion, or 9% of GDP, in the past two years, according to Capital Economics. Sudden capital flight due to, say, a worsening euro-zone crisis would leave Turkey's banks short of money to lend, hitting growth hard."
Continue reading the full article here.
J. Robert Saron
President
Bovie Medical Corporation
Image courtesy of creativedoxfoto / FreeDigitalPhotos.net
