Moody's: Settlement process positive for Turkey's credit rating

Credit rating agency Moody's has said that a settlement process between Turkey and the terrorist Kurdistan Workers' Party (PKK) is a positive development for the country's credit rating.

In a statement released on Thursday, Moody's, which is the only agency that hasn't raised Turkey's credit rating in recent months, said that the process will also increase the country's attractiveness for foreign investors. Moody's, which rates Turkey Ba1 with a positive outlook, said that the government's agreement to form a parliamentary investigative commission to evaluate the process was a "visible and credit-positive step" in its progress toward peace. "The conflict in the country's southeast has been a longstanding source of political uncertainty constraining Turkey's creditworthiness," Moody's said in its CreditOutlook publication.

Turkish state authorities, working to set a timetable for the disarmament of PKK terrorists, have been holding settlement negotiations with the terrorist group's imprisoned leader, Abdullah Ocalan, since October. Ocalan has significant influence among PKK members and supporters, and the state believes that talks with Ocalan will lead to its goal of a PKK withdrawal and, in the long run, full disarmament.

Observers say Turkey will see huge economic development once the solution process is concluded successfully.

Moody's rates Turkey just below investment grade, at Ba1. It is speculated that it will raise Turkey's rating within the first half of this year. "The prospect of peace promises to boost investor confidence and improve southeastern Turkey's attractiveness as a destination for foreign direct investment," Moody's said. In January, Moody's said that Turkey needed to improve its resilience to external shocks by narrowing its current account deficit or boosting foreign reserves before it would consider upgrading the country to investment grade.

Standard and Poor's (S&P) recently raised Turkey's credit rating to within a notch of investment grade -- to BB+ from BB -- citing a rebalancing economy and progress in the settlement process in the decades-old Kurdish issue, while Fitch upgraded the country to investment grade in November.

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