The US ratings agency Standard & Poors (S&P) has removed Turkey from its critical creditwatch list, assessing the country’s standing as stable. But the Japan Credit Rating Agency (JCR) has downgraded Turkey to BB+ from BBB (MEED 1:4:94).

The stable assessment by S&P follows an improvement in macro-economic performance since the introduction of the government’s 5 April, IMF-endorsed recovery programme. The financial markets have stabilised, inflation has fallen, and international reserves have been rebuilt. However, S&P has not upgraded Turkey from the sub-investment level of B+ it reached in the spring after successive downgrades from the start of 1994.

High real interest rates and the small budget deficit expected in 1994 have eased the economic crisis, S&P notes. However, the agency warns that sustaining the improvement will require a restructuring by the government of public sector enterprises, a reduction in the public-sector labour force, tax reforms, and cutting back on subsidies.

Bankers are now waiting for a new assessment from the other leading US ratings agency, Moody’s Investor Service, which most recently downgraded Turkey in June, to BA3 from BA1. Downgradings by both agencies in mid- January triggered a foreign exchange crisis.

The adverse assessment from JCR when matched against the favourable development from S&P has surprised officials. Among the reasons given for the JCR’s downgrading are that the government has not yet fully addressed the economy’s problems, privatisation is not on track, and that the lira has rapidly devalued.

The adverse Japanese rating could hinder a return by the government to direct borrowing from the international commercial markets. Through borrowings totalling about $4,800 million, the government had come to rely heavily on Japan’s samurai market and its diversification into bond issues away from direct Euroloan syndications, since the late 1980s.