Jul 11 2018

S&P concerns intensify as Erdoğan makes son-in-law economy chief

Standard & Poor’s warned of the negative effects of increasingly centralised power in Turkey after President Recep Tayyip Erdoğan appointed his son-in-law to head the Treasury and Finance Ministry.

The ratings agency said it was too early to draw conclusions about the impact on Turkey’s credit rating of the hiring of Berat Albayrak, 40, the husband of Erdoğan’s daughter Esra and the country’s former energy minister, according to Reuters.

“When institutions are working in sovereigns, you have a strong civil service which can take decisions, technical decisions which often take place at a non-political level,” but that was no longer the case in Turkey, S&P’s senior sovereign analyst Frank Gill said.

S&P cut Turkey’s debt further into junk territory in early May, citing an overheating economy and Erdoğan’s move to install himself in an enhanced role as president. Erdoğan won re-election on June 24 and announced his new Presidential Cabinet on Monday. It included Mustafa Varank, a close adviser, as the country’s minister for industry and technology. The post of prime minister has been abolished.

S&P is due to decide on Turkey’s sovereign debt rating at a scheduled meeting in August. It currently rates Turkey at BB-, two steps below investment grade, lower than rivals Moody’s and Fitch.

“We are watching closely what the policy on the state of emergency will be, what the overall fiscal stance is going to be,” Gill said. “Will there be further extensions of the credit guarantee scheme? And where is the growth going to come from given that we feel the funding capacity of the banks is close to exhausted?”

Gill said the government might pump more stimulus into the economy ahead of local elections in March to offset the effects of recent interest rate increases. The economy has grown at an average of more than 8 percent annually between June last year and March this year. Erdoğan introduced a credit guarantee scheme in mid-2017, backing the loans of Turkish industrialists with taxpayer cash.

Turkish banks are being saddled with the debts of Turkish corporates who are struggling to repay their foreign currency loans after a 20 percent sell-off in the lira this year. The borrowing totals more than $220 billion, when subtracting the foreign-currency assets that those companies hold.