LONDON: Credit rating firm S&P Global warned on Monday that the troubles triggered by the arrest of President Tayyip Erdogan’s main political rival could be a setback for Turkey’s economic reform programme.
S&P, which raised Turkey’s rating twice last year due to the turnaround efforts, said the arrest and imprisonment of Istanbul Mayor Ekrem Imamoglu and other opposition politicians over the last week “could pose a risk to confidence in Turkey’s economy and the stability of the exchange rate”.
It added that the “second-round effects” of rising uncertainty on household spending, capital inflows, economic growth and inflation could also be “material”. It could also interrupt the notable drop in “dollarization” - where Turks keep their money in dollars rather than in lira.
Turkish authorities have detained 1,133 people since the start of protests five days ago against the detention of Istanbul Mayor Imamoglu, Interior Minister Ali Yerlikaya said on Monday.
The clampdown has roiled markets, sending the lira, stocks and Ankara’s government bonds sharply lower, and prompted an outcry from the main opposition party and European leaders.
The cost of insuring Turkey’s bonds against the risk of a default has also risen to the point where traders are now effectively pricing in a credit rating downgrade.
That is unlikely in the short term, however. Both S&P and Fitch have ‘stable’ outlooks on their BB- Turkey ratings, while Moody’s has a ‘positive’ outlook on its B1 score, which is one notch lower than S&P and Fitch’s level.
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