Gov’t may decline IMF, Barclays says

Bloomberg

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A rally in global markets and the Turkish Lira’s strength may embolden Prime Minister Recep Tayyip Erdoğan to shelve a deal, Christian Keller, Barclays Capital chief economist for emerging Europe and a former IMF official in Turkey, said in a report Friday.

"IMF funds are not needed for now, but risks become higher without them," he said. "We think that if the IMF does not visit Turkey for talks by September, an IMF program later would likely come only as a result of pressures on Turkish assets."

Turkey and the IMF broke off face-to-face negotiations in January. Istanbul Stock Exchange’s benchmark IMKB-100 index has surged 52 percent since March 5 while the U.S. dollar lost 13.9 percent against the lira in the same period, partly on bets that the government will agree to an accord of between $20 billion and $40 billion.

The pace of economic recovery would slow without IMF as the government sought more borrowing from local banks, crimping their lending to businesses and consumers, Keller said.

The Treasury may need to refinance an average 114 percent of domestic debt coming due in the rest of the year without the IMF loans, compared with 97 percent in the first quarter, Keller said. That ratio may decline to 90 percent in 2011, he said.

A Turkey without an IMF program "raises the question of whether the government can turn around the fiscal balances and bring its debt-to-GDP ratio back to a declining trend over the medium term," he said.

Central Bank reserves may decline between $15 billion and $20 billion by December as capital outflows continue, Keller said.