By Emre Peker<\/p>\n
ISTANBUL\u2013Turkey\u2019s economic Achilles\u2019 heel, a chronic and once-again widening current-account deficit, is getting more visible with each passing month. But international investors are sanguine, seeking to deploy cash from the global monetary easing and betting Turkey will score a second investment-grade rating amid peace talks to end a three-decade Kurdish insurgency.<\/p>\n
The central bank said Thursday that Turkey\u2019s short-term foreign-funding needs rose by 21% on an annual basis to $5.13 billion in February. With that, the current-account gap for the 12-month period widened for a second straight month to $48.4 billion, or 6.2% of gross domestic product.<\/p>\n
Despite warnings from economists that Turkey can\u2019t sustain external funding requirements exceeding 5% of its $786 billion economy, markets shrugged off the latest data showing a further deterioration in the current-account gap. The Borsa Istanbul 100 index rose more than 1% to 83362, while the lira gained 0.14% to 1.7863 per dollar. The yield on Turkey\u2019s benchmark two-year bond dropped to 5.75% from 5.82%.<\/p>\n
Investor appetite for Turkey is fueled partially by speculation that Moody\u2019s Investors Service Inc. will upgrade the country\u2019s credit rating by one notch to investment grade this year. Fitch Ratings awarded Turkey investment-grade status in November, enabling more international fund managers to buy Turkish assets.<\/p>\n
Moody\u2019s boosted expectations on Thursday with a note that touched on Prime Minister Recep Tayyip Erdogan\u2019s efforts to secure a lasting peace with Turkey\u2019s Kurds, who make up about 20% of the country\u2019s 75 million population. A three-decade uprising in the country\u2019s southeast by the Kurdistan Workers\u2019 Party\u2013known as PKK and listed as a terrorist organization by Turkey, the U.S. and the European Union\u2013claimed more than 40,000 lives and cost the economy as much as $450 billion, according to official estimates.<\/p>\n
\u201cThe prospect of peace promises to boost investor confidence and improve southeastern Turkey\u2019s attractiveness as a destination for foreign direct investment, which would deliver economic benefits and reduce Turkey\u2019s external vulnerabilities, enhancing sovereign creditworthiness,\u201d Moody\u2019s analysts Sarah Carlson and Daniel Marty in London said in a report Thursday.<\/p>\n
Moody\u2019s comments echoed a similar note by Standard & Poor\u2019s Corp. in late March. S&P analysts increased Turkey\u2019s credit rating by one step to BB-plus, citing the country\u2019s economic rebalancing and the peace talks since October that culminated in a cease-fire last month.<\/p>\n
Yet the upbeat reports contrast with the rating firms\u2019 earlier stance, when they listed foreign-funding needs as a major obstacle in Ankara\u2019s aspirations for investment-grade status. When the current-account gap hit a record $78.4 billion, or 10% of GDP, in October 2011, investors sold off Turkish assets, causing the lira to 20% drop against the dollar and triggering double-digit inflation.<\/p>\n
Now, steps such as the Bank of Japan\u2019s decision to pump more money into the economy and record-low yields across the world are pushing investors to Turkey, despite economist forecasts of a widening gap on the back of rapid consumer-lending growth.<\/p>\n
In February, Turkey financed 61% of its current-account deficit with so-called hot money as portfolio inflows more than doubled to $3.1 billion compared with the previous month.<\/p>\n
Meanwhile Turkey\u2019s inflation climbed to 7.3% in March from 7% in February, and data released last week showed that the economy expanded by only 2.2% last year, missing analyst and government estimates ranging from 2.5% to 3%.<\/p>\n
\u201cNot a great combo of data: higher and wider current account deficit, higher inflation and weaker growth,\u201d said Tim Ash, head of emerging-market research at Standard Bank Plc in London. \u201cBut markets don\u2019t seem to care much at the moment with emerging markets still awash with liquidity, and Turkey underpinned by hopes on the PKK peace front \u2026 and more positive commentary of late from Moody\u2019s.\u201d<\/p>\n
via Investors Look Past Turkey\u2019s Achilles\u2019 Heel – Emerging Europe Real Time – WSJ.<\/p>\n","protected":false},"excerpt":{"rendered":"
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