Turkey needs credible plan to avoid downgrade, says Moody’s

Turkey's financial woes have pushed it to right near the top of Moody's worldwide external vulnerability index. (AFP/File photo)
Updated 17 May 2019
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Turkey needs credible plan to avoid downgrade, says Moody’s

  • Moody’s downgraded Turkey to Ba3 — three rungs into junk territory — last August, but it also kept it on a “negative” outlook
  • New analysis from the rating agency shows Turkey’s economic woes have pushed it to right near the top of its worldwide external vulnerability index

LONDON: Turkey needs to put a comprehensive and credible economic plan in place if it is to avoid another cut to sovereign credit rating, a senior Moody’s sovereign analyst said on Thursday.
New analysis from the rating agency shows Turkey’s recession, the slump in the lira, upcoming refinancing pressures and dwindling reserves have pushed it to right near the top of its worldwide external vulnerability index.
“Failure to put forward a credible broad-based plan to address the structural issues, and in the near-term dampen the market volatility pressure on the lira ... that would be a pressure point from a rating perspective,” Moody’s Managing Director of Sovereign Risk, Yves Lemay, told Reuters.
Moody’s downgraded Turkey to Ba3 — three rungs into junk territory — last August, but it also kept it on a “negative” outlook which is a warning that another cut could happen in 12-18 months.
It gives it some time and one of Turkey’s main plusses is that it has a low debt-to-GDP level of about 30 percent, but the likelihood is that an economic plan would be laid out after Istanbul’s mayoral elections have been re-run on June 23.
“For us, the critical issue is whether this administration has the capacity to move aside the political issues and focus on the economic needs of the country,” Lemay said, adding that the repeat of the Istanbul vote had underscored concerns.
“It is another manifestation of the domestic political risk in this instance, and the weakening of the institutions of the country.”
With regards to the drop in currency reserves, he added: “When we look at the size of what (sovereign and bank debt) is coming due in the next year against the size of the reserves, it is a signal of significant vulnerability.”
“The amount of reserves is very much insufficient to refinance the external obligations.”
Moody’s calculates the Turkish government’s interest payments rose 30.4 percent in nominal terms last year and almost 50 percent in the first three months of 2019 due to the weak lira and a rise in payments.
As a result it expects interest payments to increase to around 8.2 percent of the government’s revenue in 2019 from only 5.9 percent in 2017, “eroding” the government’s fiscal strength.


Nicaragua puffing up status in rarefied world of premium cigars

Updated 24 min 57 sec ago
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Nicaragua puffing up status in rarefied world of premium cigars

  • Nicaraguan cigar exports to the US have increased by 40 percent since 2008
  • Half of town of Esteli is employed in the tobacco industry

ESTELI, Nicaragua: From “rich and full-bodied” to “complex with hints of licorice,” aficionados exhaust the lexicon to capture the essence of Nicaragua’s most highly-prized produce — not wine, but cigars, which are especially popular in the United States.
The recognition turns the vibrant green hills of Esteli, in the troubled Central American country’s northwest, into a hive of activity come harvest time.
Here, 800 meters (2,620 feet) above sea level, half of the population of 110,000 is employed in the tobacco industry — picking, drying or curing, or rolling cigars in factories.
“No one has soil as good for tobacco as Nicaragua,” explains Nestor Plasencia, whose family business is one of the country’s leading cigar exporters, as he sits and savors the sweet aroma of one of their creations.
Nutrient-rich volcanic soil and know-how imported from Cuba more than 50 years ago, as well as a knowledgeable workforce have set Nicaragua apart when it comes to growing flavorful top-quality tobacco.
Apart from Esteli, the two other tobacco-growing regions are the Condega and Jalapa valleys in the north, each with their own distinct soils and minerals.
Part of the lure of Nicaraguan tobacco is that “the same seeds planted in different soils and climatic regions give different flavors,” Plasencia said, between spiralling puffs.
Cuban cigars may easily outsell the lesser-known Nicaraguan product in Europe, but Nicaraguan brands have taken advantage of the crippling US embargo on Havana — in place since 1961 — to sell to the Americans.
Nicaraguan cigar exports to the US have increased by 40 percent since 2008, reaching 140 million cigars in 2018, outstripping the Dominican Republic and Honduras, according to figures from the Cigar Association of America (CAA).
Nicaragua’s industry is a young one — it was started by Cuban exiles who fled Fidel Castro’s revolution in 1959. When the Central American country’s civil war ended at the start of the 1990s, the industry started to flourish.
“My family started in tobacco in Cuba in 1865. Today we operate in Nicaragua and Honduras,” says Plasencia, whose father hails from the Caribbean island.
Today, the country has 70 factories producing more than 5,000 brands, says the director of the Nicaraguan Chamber of Tobacco Producers, Wenceslao Castillo.
Karina Rivera, a quality control supervisor at Plasencia Cigars, tests an average of eight cigars a day.
“If I see that it’s not at the level of quality demanded by customers, we report immediately to find out where the problem is,” she said.
Smokers say a lot is going on in a cigar during puffs, tasting richness, balance and complexity — a variety of flavors and aromas that have helped several Nicaraguan brands conquer the US market.
In 2018, American trade magazine Cigar Aficionado named seven Nicaraguan brands in the top 10 of its annual ranking.
As for the Best Cigar of the Year, the “E.P. Carrillo Encore Majestic” is made in the Dominican Republic, but with Nicaraguan tobacco, the magazine says.
“The strength of the Nicaraguan tobacco industry is our focus on quality, which is why we are today the largest exporter of premium cigars to the United States,” Castillo says proudly.
It’s clear that in the rarified world of premium cigars, names are important. To the aficionado, in clubs and the best bars, they trip off the tongue — La Opulencia Toro, La Imperiosa, Villiger La Vencedora Churchill...
“We believe that 60 to 70 percent of our success is due to the way tobacco is dried and the time spent on fermentation and aging — we don’t rush things,” says Castillo.
“The trilogy of this success is the soils, the microclimate and the people, the care they put into their work,” says Plasencia, who runs two factories in the Central American country and exports 15 million cigars a year to the United States.
The cigar industry has had to do more that resist climatic changes to survive.
It’s one of the few to emerge largely unscathed from the political and economic crisis that has rocked Nicaragua for more than a year, after a violent crackdown on anti-government demonstrations left more than 325 people dead and forced 62,000 into exile.
It also put 400,000 out of work in an economy that had enjoyed annual 4.0 percent growth, according to the private sector.
“If it weren’t for these factories, Esteli would surely be deserted,” says 43-year-old Silvia Moreno, who has worked in the tobacco industry for half her life.