Japanese analyst urges an IMF deal

Hurriyet Daily News with wires

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Yoshihiko Tamura, an analyst for Turkey at the Japan Credit Agency, or JCR, said an agreement with the International Monetary Fund, or IMF, is "a must" for the economy.

Speaking to the Anatolia news agency, Tamura said Turkey should sign a standby deal with the IMF that would solidify global confidence in the economy. In order to come out of the crisis period with minimal damage and realize sustainable economic growth, Turkey should also continue on the path to European Union membership by passing reforms, the analyst said. Noting that the economic situation is "sluggish" in Turkey, Tamura added, "It is not a negative approach to change Turkey’s current credit note in the current crisis."

"Thanks to its strong finance sector, Turkey is able to survive the first effects of the crisis," he said. As negative conditions in the economy cause foreign and domestic demand to decline along with investments, Turkey will contract considerably, Tamura said, adding, "Turkey can see a return to growth next year."

Under current conditions, Turkey should find foreign sourcing to close its foreign-financing deficit, the analyst said. However, foreign financing sources have diminished due to the crisis. As oil prices start to rise again and exports see considerable contraction, the budget deficit will become a problem again, Tamura said. Crude oil futures for July delivery traded at $68.44 a barrel on the New York Mercantile Exchange on Friday.

"Signing the IMF deal is the best thing to do as Turkey is in need of increasing foreign financing sources," Tamura said. "A standby would not only support the country’s finances, but also increase international confidence."

Ominous sign from bonds

Turkish bonds fell for a fifth day Friday, posting the biggest weekly loss since October, on concerns that Prime Minister Recep Tayyip Erdoğan’s stimulus plan would fuel borrowing and push the country further away from an agreement with the IMF.

The drop in Turkish Lira-denominated debt raised the average yield 16 basis points to 12.91 percent Friday evening in Istanbul, extending the increase to 4.2 percent this week, the most since Oct. 24, an index of securities tracked by ABN Amro Holding showed.

The lira closed Friday at 1.5366 per U.S. dollar.

Erdoğan on Thursday announced support for the automotive, mining and health sectors, along with nine other industries, at an estimated total cost of 3.1 billion liras ($2 billion). The extra spending threatens to push the government further away from fiscal targets set by the IMF for a potential $20 billion to $40 billion loan.

"The package is unlikely to jumpstart the economy," Bloomberg quoted Citigroup economist İlker Domaç in Istanbul as saying in a note to clients. "It may even backfire if it creates the impression that the package is coming at the expense of a credible macroeconomic and fiscal program supported by the IMF."

Bonds fell for a fourth week, the longest losing streak in seven months, making it harder for the government to finance an enlarged budget deficit. The shortfall has almost quadrupled to 20.1 billion liras ($13 billion) from a year ago, even before Erdoğan’s stimulus package.

"This gives a negative signal in terms of fiscal discipline," said Benoit Anne, head of the emerging Europe and Latin America currency and debt strategy at Merrill Lynch in London. "Yields will continue to rise" another 40 basis points to 14 percent for the benchmark March 2012 note in the "near term," Anne said.