ISTANBUL: Uncertainty caused by Turkey’s corruption scandal could hit economic growth in the near term, Finance Minister Mehmet Simsek said yesterday, while ratings agency Fitch warned that a prolonged crisis could weaken the country’s creditworthiness.
A wide-ranging graft investigation, cast by Prime Minister Tayyip Erdogan as a plot to undermine his government, is shaking investor confidence in Turkey when the lira is languishing around record lows, inflation rising and growth slowing.
“We are facing a significant challenge in the political arena but we think this will not be long-lived,” Simsek said in an interview on CNN Turk television.
“There could be a slowdown to some extent in the first quarter. But according to our base scenario, I believe that as uncertainty lessens and the environment calms ... growth could still be around four percent (this year).”
Erdogan’s ruling AK Party has built its reputation on its record for economic management and an avowed commitment to fight corruption. The scandal, which exploded on December 17 with the detention of businessmen close to the government and the sons of three cabinet ministers, risks damaging him in the run-up to local and presidential elections this year.
Fitch said that while the crisis had no immediate impact on its ‘BBB-‘ sovereign rating for Turkey, prolonged uncertainty could prove more damaging.
“If the corruption scandal drags on, it could weaken the government and undermine its ability to take timely policy measures that would maintain economic stability,” it said.
It noted that tensions between the government and judiciary had strained institutions in Turkey. Erdogan has cast the corruption investigations as an attempted “judicial coup” by forces seeking to undermine his government, and hundreds of police officers have been removed from their posts.
“These factors are not incompatible with a ‘BBB-‘ rating, but they have the capacity to weaken sovereign creditworthiness,” Fitch said in its statement.
The economic and political pressures caused by the scandal may delay for many more months a tightening of monetary policy that would stabilise inflation and stop the lira from plumbing record lows.
Reuters
