Political risk still high in Turkey following Erdoğan’s win: Fitch

LONDON

Global ratings agency Fitch has claimed political risks to Turkey’s economy are still high following Prime Minister Recep Tayyip Erdoğan’s presidency win, warning tensions are “likely” to dominate the country’s agenda ahead of the parliamentary elections.

“Erdoğan’s outright victory Sunday’s [Aug. 10] vote, in the first round of Turkey’s first popular presidential election, does little to ameliorate the political risk to Turkey’s sovereign credit profile,” Fitch Ratings said in a statement released Aug. 11.

“Political risk will weigh on Turkey’s ratings through its potential effects to discourage capital inflows and reduce policy predictability,” the agency said.

The agency suggests the parliamentary elections, which will be held by June 2015, will likely keep the political tension high, “as Erdoğan seeks to extend the power of the presidency.”

According to Fitch, the anti-government Gezi Park protests last summer that were a response to Erdoğan’s perceived authoritarian tendencies is a fresh reminder of a potential new wave of political and social unrest in the country.

“Political continuity does not eliminate political and social unrest, which has been elevated since last year’s Gezi park protests and [the 2013] corruption scandal,” the agency warned, saying how political and social shocks can damage a country’s credit rating and international reputation.

“Turkey has been remarkably resilient to recent external shocks and banks and corporates continue to enjoy high roll-over rates, but we expect political risk to remain a credit weakness that could lead to a negative rating if it adversely affects government effectiveness and policy predictability,” Fitch stressed.

The agency also warns the president elect’s public criticism of the Central Bank’s policy on interest rates could undermine the Bank’s “tenuous credibility.”

It also says “a rapid unwinding of these hikes would make Turkey more vulnerable to a sudden change in investor sentiment towards emerging markets.”