Turkey: Positive fundamentals should dominate

We would recommend buying Turkey\'s external debt after the French
referendum. We see some risks of a sell-off if there is a \"No\" vote in
France, but we would see this as a buying opportunity as we expect the
market to concentrate on positive fundamentals thereafter.
The key short-term risk for Turkey\'s bond performance is the French vote on
the EU constitution on 29 May 2005. If the vote is negative, this could
impede Turkey\'s chances of starting negotiations on EU accession in October
this year.
Fundamentals remain positive
Turkey\'s virtuous economic cycle continues, with the economy benefiting from
the strong fiscal performance, lower interest rates and considerable capital
inflows.
Fiscal performance is on track
The strong fiscal performance is continuing this year on the back of good
revenue growth and sustained budgetary discipline. The January-April 2005
data suggest a strong start to the year:
The balance of payments outlook is supportive
The financial account surplus offset the current account deficit in Q1 2005,
and we expect the financing of the deficit to become more diversified as
FDIs and portfolio investment increase.
The medium and-long term risks are political
Political developments in Cyprus, the Ocelan case, Turkey\'s position on the
atrocities committed by Ottoman Turks against Armenians in the last century,
plus the unstable situation in Iraq and the Kurdish issue, remain the major
risks after the referendum.