Deviation On Turkish Debt Metrics To Lead Downgrade: S&p (2)

Istanbul, June 18 (DHA) - International rating company Standard and Poor's (S&P) warned Turkey on any deviation of debt metrics, which would lead it to consider a downgrade, in a statement released on Thursday.

"This is the first time since 2002 that AKP has not won an outright majority" the S&P reminded in the statement. "As the results stand, the possibility that AKP could bring about constitutional change, to bestow greater powers on the president, has receded."

AKP could attempt to negotiate a coalition government with any of the parties that have made it to parliament, including the Nationalist Movement Party (MHP), the Republican People's Party (CHP), or the People's Democratic Party (HDP).

Alternatively, AKP could choose to rule as a single party, relying on support from opposition parties on a policy-by-policy basis, the rating company said in the statement. "We see a coalition between CHP, MHP, and HDP as unlikely given their
ideological differences."

"Snap elections would be called"

If AKP is unable to form a coalition, the president has said publicly that the mandate to negotiate a coalition would first go to CHP. If CHP failed to do this, snap elections would be called, it added. "In previous publications on Turkey, we have noted the pressures on key independent institutions, including Turkey's central bank, which have undermined policy credibility and economic stability."

"The election outcome could reduce pressure"

This is one factor underpinning its negative outlook on the ratings, the S&P said, adding that the election outcome could be read, as the Turkish electorate exercising an important check on decision making by rejecting a greater centralization of power in the hands of the presidency. "We believe that, in this regard, the election outcome could reduce pressure on the judiciary, the financial regulator, and the central bank, and could therefore potentially improve policy predictability."

Uncertainty would likely persist over the next few months, while the formation of a government, if completed in a timely manner, should bode well for stability, it is policy that will more likely influence Turkey's credit standing, it said.

Cabinet appointments

If a coalition was formed, the policy predictability would partly depend on key cabinet appointments, the rating company said, "Even if AKP goes it alone, its reliance on outside support to pass legislation will surely have implications for what it can pass through parliament and at what speed."

"Early elections likely to be held in November"

"As we understand it, if a government is not formed within 45 days of the speaker's appointment, early elections would likely be held in November this year" the S&P said in the statement. "Under this scenario, we believe political uncertainty would remain heightened until the end of the year, which could potentially hamper growth if business investments are postponed."

Consumer confidence and inflation

Volatility of the Turkish lira, which had already depreciated 2.8 percent against dollar since the elections, could have implications for consumer confidence and inflation, the rating compeny stated.

"As we have previously stated in our ratings outlook for Turkey, if such developments were to weaken fiscal performance and debt metrics were to deviate from current expectations, this could lead us to consider a downgrade" it added.