10-day hiccup in IMF, Turkey talks

Hurriyet Daily News with wires

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Talks with the International Monetary Fund, or ımf, on a loan to help Turkey meet its external financing needs have been suspended for 10 days in an attempt to clear remaining obstacles to a deal, Prime Minister Recep tayyip erdoğan said yesterday. An ımf team has been in ankara for talks with Turkish authorities since Jan. 8. The team was due to leave yesterday after the temporary suspension. Turkish business leaders and investors urgently want a regular stand-by loan deal of around $20 billion to $25 billion to stabilize the economy, which ratings agency Moody's expects to contract by 0.8 percent in 2009 after years of stellar growth. Financial markets had expected a new stand-by loan deal, a successor to a $10 billion program that ended in May, to be announced this week. But the government seems reluctant to do so, mainly due to the concern that the ımf will put a brake on public spending ahead of local elections on March 29. Erdoğan told reporters in ankara yesterday some sensitive issues had been overcome but others remained to be resolved with the ımf. "Our colleagues decided to work (separately) for 10 days and suspended talks (with the IMF). There will be bilateral studies and É I will be a meeting with ımf First Deputy Managing Director John Lipsky (in Davos)," he said. Responding to a question as to whether the reason for suspension was growth figures, Erdoğan said "rumors are not true at all." Hope of an early deal Economists said they still expected Turkey to conclude talks in the near future as Turkey could not afford to be without the support of the ımf and its funds during a global crisis. Turkey successfully recovered from a deep crisis in 2001, after a huge ımf bail-out package. "The deal will probably be completed in mid-February, with the first tranche of the loan being transferred to the government before the March local elections," Türker Hamzaoğlu, emerging markets economist at Merrill Lynch, told Reuters. The extra yield investors demand to buy Turkish bonds instead of U.S. Treasuries fell 13 basis points to 485 basis points, according to JPMorgan Chase’s EMBI+ Index. "The market is pricing on the basis that a deal will be reached," Bloomberg quoted Lars Christensen, head of emerging-market research at Danske Bank in Copenhagen. "If Turkey came out and said no to a deal, then that would be quite negative." "The government has benefited from the ımf deal talks; in a way it had a free lunch," said Ahmet Akarlı, an economist for Goldman Sachs Group in London. "Now it is time to deliver." "A deal needs to be wrapped up in the shortest time possible to limit damage to the economy from the global crisis," Reuters quoted Credit Suisse economist Berna Bayazitoğlu as saying. "There is still a chance that the talks might be wrapped up in February, but the vagueness É increases the risks that the agreement may be reached later rather than sooner."

Fiscal matters, reforms Government sources, meanwhile, told Reuters that the basic area of disagreement between ankara and the ımf was fiscal matters and some non-budgetary structural reforms in the public sector. 'Talks with the ımf are nearly in their final phase, the prime minister will make the final decision on the issues that are not yet agreed," said one senior government source, who declined to be named. The disagreements between the ımf and Turkey are not insurmountable, but they may take time, sources said. No problems remained concerning the setting of fundamental economic goals, such as growth and inflation targets. A letter of intent for the loan deal was likely to be sent to the ımf before elections, according to Reuters. Until recently the government was reluctant to opt for another ımf loan deal, which usually comes with spending constraints for borrowing countries. "With the external debt financing requirement in 2009 running at $75 billion and that excludes short-term debt, Turkey cannot afford to run down on its foreign exchange reserves under the current backdrop," C.A. Cheuvreux economist Simon Quijano-Evans said. Turkey's outstanding debt to the ımf is $8.5 billion, the latest Treasury data shows. The country has signed 19 stand-by accords with the ımf, concluding only the last two accords successfully.

Stocks largely unfazedTurkish stocks were largely unfazed by the unexpected pause on talks with the International Monetary Fund, but the benchmark IMKB-100 index of the ıstanbul Stock Exchange still lost some value, despite a generally positive day in global markets. The U.S. dollar gained a bit against the Turkish Lira.The IMKB-100 index closed yesterday at 25,798 points, down 171 points, or 0.66 percent. Despite starting the day on positive territory, the index fluctuated on the uncertainty over ımf talks and fell to as low as 25,479, only to regain lost ground later. The index has lost 4.5 percent since the start of the year, and shed more than 50 percent since the start of 2008.The U.S. dollar was trading at around 1.64 liras yesterday at 5:10 p.m. The greenback gained nearly 6.7 percent against the Turkish currency, rising to as high as 1.6720 on Jan. 20. Speaking to Hürriyet, Finansbank economist İnan Demir said if the risk perception abroad is distorted, developments in talks with the ımf may create pressure in domestic markets.