Government may ’delay IMF accord’

Bloomberg

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Turkey may delay a decision on whether to accept a loan agreement with the International Monetary Fund, or IMF, until after the organization’s October annual meeting in Istanbul, according to the country’s largest fund manager.

"The government is managing the process well and I expect them to reach a decision, negative or positive, after the IMF meeting in October," Gürman Tevfik, chief executive officer of İş Asset Management in Istanbul, said in an interview Wednesday. 

Its "wait-and-see" approach is the best stance as signs of an easing in the global recession reduce the need for funding, he said.

Stock exchange rally

Istanbul Stock Exchange’s benchmark IMKB-100 index jumped 43 percent in the second quarter, beating the MSCI Emerging Markets Index’s 34 percent advance, and the Turkish Lira surged 8 percent against the U.S. dollar on bets that interest-rate cuts and a loan accord with the IMF will lift the country out of a recession this year.

Prime Minister Recep Tayyip Erdoğan has been negotiating as much as $40 billion in IMF aid since May 2008 as Turkey faces its first economic slump since 2001. The talks stalled in January amid disagreements over government spending and tax collection. Erdoğan said on June 26 the IMF and Turkey would meet in the "coming weeks" to discuss a new loan.

"If Turkey doesn’t strike a deal with the IMF it will have a negative impact in the short term, but the market will recover quickly," said Tevfik, who manages 9 billion liras ($5.88 billion) of assets. İş Asset Management is the largest fund manager, according to data from the Capital Markets Board.

Turkey will host the fund’s annual meeting in Istanbul on Oct. 6 and 7 and will make a decision that month, Tevfik said.

The Central Bank has shaved 8 percentage points from its benchmark interest rate to a record low of 8.75 percent in the past eight months to boost spending. The economy contracted 13.8 percent in the first quarter, the most on record, the statistics office said Tuesday.

A recovery will begin at the end of next month as people start spending during the religious festival of Ramadan and as schools reopen, Tevfik said. Auto makers will lead the recovery toward the end of the year, he said.

"Recently people have been buying the Turkish index on the expectation of positive growth in 2010," said Tevfik. There is "more upside" for Turkish stocks as long as growth expectations stay positive, he said.

The IMKB-100 index is valued at 17.6 times its companies’ reported earnings, the most expensive level since September 2006, according to data compiled by Bloomberg.

"Price/earnings ratios are not overvalued," said Tevfik. "Its about expectations, so people expect that companies will earn more, stock prices will go up, and the economy will grow."

The Turkish economy will expand 1.5 percent in 2010, after shrinking 5.5 percent this year, the World Bank said on June 22. The IMF expects a slump of "at least 5 percent" this year, Deputy Managing Director John Lipsky said on June 19. That’s more than the 3.6 percent predicted by the government.

Tevfik predicted assets under management at Turkish investment companies will swell to $100 billion in 10 years’ time from $25 billion now. Turkish equity funds have returned about 40 percent on average and bond portfolios about 9 percent this year, he said.