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Turkey: The gains and pains of investment grade

Turkey’s ambition for an investment-grade rating might be realized this year. Strong fundamentals and political stability almost guarantee it. But if it gets a triple-B rating, two problems remain. What can foreign investors buy, and will making the grade undermine further reform? Nick Lord reports.

HAD YOU ATTENDED any Turkish investor presentation, government meeting or corporate conference in the past six months you would have heard a similar refrain: Turkey deserves an investment-grade rating. It is a coda slapped onto the end of every speech. "The markets are right and the agencies are wrong," everyone says. "Turkey is an investment-grade country."

It is the closest thing Turkey has to an economic national anthem. Everyone knows the words and the music is familiar to all. It is a brave person who would dare to suggest otherwise.

Although the merits of Turkey’s case suggest that upgrades to investment grade are likely in the second half of the year, some observers worry about what will happen then. Turkey needs to be careful what it wishes for – it might just come true.

Turkey has never had it so good. The trio of economic torments that have hampered it for so long are in abeyance. Inflation is down to about 5%, real interest rates are now at zero and high foreign indebtedness is under control. "Turkey has gone through a big change since 2002," says Huseyin Erkan, chief executive of the Istanbul Stock Exchange (see Mr Capital Market: interview with Huseyin Erkan, chairman and chief executive of the Istanbul Stock Exchange, Euromoney, March 2011).

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