Controversial Bank Asya decision sparks uncertainty, scares investors

Credit rating agency Moody’s has warned in a report released on Monday that a strengthening US dollar will be harmful for countries such as Turkey that have high current account deficits (CAD). The report said Turkey, South Africa, Colombia and Brazil will face difficulties financing deficits and will be weakened by diminished external net inflows, adding that the rising dollar will make it increasingly difficult for companies in these countries to pay off forei

Credit rating agency Moodyand#39s has warned in a report released on Monday that a strengthening US dollar will be harmful for countries such as Turkey that have high current account deficits (CAD).

The report said Turkey, South Africa, Colombia and Brazil will face difficulties financing deficits and will be weakened by diminished external net inflows, adding that the rising dollar will make it increasingly difficult for companies in these countries to pay off foreign debt. It noted that while countries with significant foreign exchange reserves may have buffers against external factors, Turkeyand#39s reserves are very low.

The Moodyand#39s report also estimates that external debt will amount to just over half of Turkeyand#39s gross domestic product (GDP) by the end of 2015.

Moodyand#39s referenced the recent decision by the Central Bank of Turkey to not cut interest rates, noting that if the bank had done so, this would have increased the agencyand#39s concern that the bankand#39s independence had become compromised.

Tension between the central bank and President Recep Tayyip ErdoIan reached a boiling point last month when the latter accused central bank Governor Erdem BaIandccedilI of andldquoselling out the homelandandrdquo by maintaining high interest rates. BaIandccedilI had initially raised rates at the beginning of 2014 when the lira had fallen to nearly 240 against the dollar, and while this enabled the currency to recover, it resulted in continual wrath from ErdoIan as the bank has declined to make more than a gradual cut since then.

The constant criticism of the central bank has created concerns over the bankand#39s independence.

The troubled Turkish lira has lost as much as 10 percent of its value this year, falling to record lows on multiple occasions, at one point dipping well past the 260 mark against the dollar, although it has since slightly recovered.

Known for having a relatively high CAD, Turkey was able to decrease it by 29.5 percent in 2014, primarily due to the depreciated lira influencing trade prices and the global drop in oil prices.

However, the credit rating agency Fitch warned last month that certain factors, such as a potentially disappointing eurozone recovery, could result in slowed current account adjustment.

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SOURCE: Today’s Zaman