The international rating agency, Standard & Poor's said on Monday Turkey is among the economies most vulnerable to a credit squeeze as the IMF warned about the high level of corporate borrowing. Turkey must be vigilant about its level of corporate borrowing, which is higher than other countries in central and eastern Europe, an International Monetary Fund official said on Tuesday.
"In the Turkish case, they have greater exposure to corporate borrowing," Ajai Chopra, deputy director of the IMF's European Department told reporters at a news conference in Vienna. "That is something they will have to keep a watch on." As of the end of last year, the private sector foreign debt stock in Turkey was $158 billion.
Chopra also said that Turkey, like other economies in the region, should heed advice given by the IMF in its European report released on Monday. This included tighter macroeconomic policies and keeping an eye on inflation in particular. "Inflation pressures are definitely a significant concern in many countries in emerging Europe," Chopra said.
He said policymakers needed to decide promptly how to deal with domestic and external pressures. "For many of these countries, some of the standard indicators of macroeconomic vulnerability, for example the size of the current account deficit, are flashing red," he said.
The IMF said in its European report that it predicted a significant slowdown in Western Europe and a less marked deceleration in the central and eastern part of the continent, where it said the central banks of many countries needed to tighten rates further.
The IMF warning came a day after S&P released its survey in which it classified the economies into five categories based on their vulnerability to the global credit crunch's statement. The ratings agency listed Iceland as the most vulnerable, followed by Romania, Lebanon and Turkey, while Chile was rated the least vulnerable.
According to the survey results emerging economies in Eastern Europe are the most vulnerable to a global credit squeeze, while their counterparts in Latin America and Asia were better insulated from the U.S. mortgage meltdown.
China was second best-protected, followed by oil exporters Venezuela, Trinidad and Tabago and Nigeria.
"Just how vulnerable each individual sovereign could become relates directly to its degree of dependence on foreign capital inflows to finance external imbalances and avert balance-of-payments crises," S&P statement quoted as saying by Reuters.
S&P noted that none of the economies deemed "vulnerable" or "somewhat vulnerable" were in Asia or Latin America but said the two categories comprised of European countries with the exception of Lebanon, South Africa, and Tunisia.
The ratings agency assessed the economies on criteria including their gross external financing requirements as well as their government’s estimated liability for a systemic banking crisis as a percentage of gross domestic product.