Fitch upgrade certain to spur FDI flow, amount depends on stability
Analysts predict that Fitch's upgrade of Turkey's investment rating from BB+ to BBB- will certainly speed the flow of foreign direct investment (FDI) entering Turkey, but they also warn that the amount of FDI is expected to depend on developments in the world economy and Turkey's political stability.

A study published by Oyak Yatırım in October estimated that following an investment grade upgrade from rating agencies, Turkey would attract much foreign investment in the years following the upgrade, which could bring an extra $100 billion of FDI by 2023.

Commenting on Fitch's grading, Finance Minister Mehmet Şimşek noted that on average after an upgrade of a country's investment grade, the FDI entering that country is estimated at 4 percent of its gross domestic product (GDP). "Turkey's GDP is $800 billion this year, and 4 percent of this amount is $32 billion, but of course it will take one to two years," he said.

Speaking to Today's Zaman, Selim Işıklar, a strategist at Info Investment, said he had already predicted an upgrade would take place due to the Turkish economy's soft landing and the central bank's efforts to reduce the current account deficit (CAD) as well as the diversification of exports. He said a generous flow of FDI is expected after the upgrade, but external factors and developments in international markets will also determine the continuation of the investment flow.

"We must take into consideration that the agencies now change grading more often, and it is crucial for Turkey to keep its political stability in the future in order to keep the rating," Işıklar commented. However, he also indicated that there is a rise in the flow of FDI to developing markets, and with the FED's expansion policy, the money flow will be higher. "The upgrade indicated that Fitch did not take the S&P's downgrade into consideration and has a positive outlook on Turkey," Işıklar said.

Dr. Süleyman Yaşar, a professor of economics at İstanbul University and a columnist for the Sabah daily, spoke to Today's Zaman regarding the amount of FDI that he believes will eventually increase with the upgrade; however, global economic conditions will also play a role. "The investment rises because the banks that approve loans to businesses look at the ratings of countries, and depending on the ratings, they agree to fund investments abroad," he said. Yaşar explained that the employees of these banks are not experts with regard to the Turkish economy; therefore, they base loan approvals on the ratings to express the crucial role these ratings play in the flow of investments.

Rating agencies called upon for fair treatment

Prime Minister Recep Tayyip Erdoğan also commented during his speech on Tuesday that the upgrade is a signal of improvement but that a political or ideological approach in grading is not acceptable. Stating that the unfair ratings of these agencies place investors in difficult situations and cause economic hardship in countries, he called on international organizations such as the United Nations to take steps to restructure the credibility of these agencies in order to avoid any more economic destruction that may result from these ratings. In addition, Erdoğan pointed out the economic achievements that the country has experienced in the past decade, noting that Turkey's stable investment-friendly environment is not a coincidence but a result of reform efforts and hard work.

However, Republican People's Party (CHP) leader Kemal Kılıçdaroğlu criticized the government and claimed that the upgrade was politically motivated to have Turkey keep quiet on the Syrian crisis.

Stating, "It was said two years ago that the hovering of Turkey's ratings have prevented $50 billion of FDI back then," Yaşar continued by bashing the rating agencies for their unfair treatment of Turkey's economy. "Turkey deserves an A rating because with this upgrade Turkey is included in a group that also includes Spain, which is unfair. Currently, Spain's banking system would be on the verge of collapse without the help of the European Union, and the country is certainly not investment friendly," he said. To support his point, Yaşar also compared Poland's rating and Turkey's rating. "Poland has an A rating, but the budget deficit of the country is 5 percent, and public debts are at 65 percent. However, Turkey's budget deficit is around 1 percent and its public debt is at 39 percent," he said.

Furthermore, Yaşar criticized economists and institutions in Turkey such as the Turkish Industrialists and Businessmen's Association (TÜSİAD) and the Turkish Union of Chambers and Commodity Exchanges (TOBB) for keeping quiet when the rating agencies downgraded Turkey's rating. Saying that the ratings of the agencies are not always based on real indicators, he noted that Moody's in England and Standard & Poor's in Australia have been taken to court for making their ratings in exchange for bribes.

Other emerging economies, including Brazil, India, Tunisia and South Africa, had all received better ratings earlier, although their economic growth has been slower, and they had more public debt in addition to being in need of financing.

Tim Ash, the head of emerging-market research at Standard Bank PLC in London, stated following the upgrade: "Turkey should have long been investment-grade status, given its proven willingness to pay in difficult circumstances. The external financing risks to Turkey have long been overstated. This is a big confidence boost for Turkey and should help attract a new investor base," adding, "I would expect Moody's to follow, and eventually S&P, kicking and screaming!"

Turkish assets jumped on Monday, with the lira hitting three-month highs and domestic yields approaching record lows. Tuesday followed with a slight decline of 0.2 percent in shares traded on the main benchmark İstanbul Stock Exchange (İMKB). The US dollar continued its loss against the Turkish lira with $1 traded at TL 1.77 on Tuesday afternoon.

(Cihan/Today's Zaman) CİHAN
Last Modified: 2012-11-06 20:00:01
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