Turkish PM Erdoğan’s IMF blues

Hurriyet Daily News with wires

refid:10886877 ilişkili resim dosyası

Conflicting signals on a possible accord with the International Monetary Fund, or IMF, had Turkish markets on tenterhooks yesterday. After meeting IMF First Deputy Managing Director John Lipsky at midnight Wednesday, Prime Minister Erdoğan answered questions from journalists yesterday morning in Davos.

The agreement with the IMF is being held up by two unspecified topics that Erdoğan said the fund introduced into the discussions. The government finds the IMF stance on these issues unacceptable and is studying the matter, Erdoğan said.

The government needs IMF support as the global crisis dries up the flow of foreign investment into emerging markets. On Tuesday, the government announced a 10-day suspension of talks.

The meeting with Lipsky went "very well," Erdoğan said. "We made a lot of progress. I am sure the solution is close and the efforts will produce a result."

Turkey is "taking a step toward the deal," Bloomberg quoted Barbaros Özüyılmaz of Alternatifbank. "But these announcements won’t carry the market any higher as we need more clarity."

Erdoğan said the Turkish Lira and financial institutions were in good shape, and that failure to secure an accord "would not be the end of the world." But, he said, a deal would make 2009 "easier."

An IMF agreement would be the fourth time in a decade that Turkey has turned to the lender for support. The Turkish economy grew 0.5 percent in the third quarter last year, the slowest pace in six years. Contraction is expected in the fourth quarter.

An IMF negotiating team is due to return to Turkey for more talks in early February. Fund officials held almost three weeks of meetings in the capital Ankara earlier this month.

Lipsky also met with Economy Minister Mehmet Şimşek in Davos. Speaking to reporters, Şimşek said Turkey has "reached an important point in negotiations." Both sides are working to reach an agreement, he said.

The benchmark IMKB-100 index of the Istanbul Stock Exchange lost 2 percent yesterday, declining to 26,162 points, while the U.S. dollar was trading at around 1.62 liras at 5:15 p.m.

"Everyone wants the market to rise, but with the IMF uncertainty there are no catalysts for upward movement," Reuters quoted Alper Erginol of Oyak Invest. Analysts said investors have already priced in an IMF deal. "If the result is negative, that would be catastrophic," Erginol said.

Erdoğan ’stubborn’ in bargains

As talks go on, some are beginning to wonder if Prime Minister Recep Tayyip Erdoğan does not intend to make a deal with the IMF at all.

Despite Erdoğan’s claims that the IMF was "bringing new issues to the table each passing day," economy bureaucrats in Ankara said the IMF was "extremely tolerant and flexible," according to business daily Referans.

In an analysis, Referans Ankara representative Erdal Sağlam said the IMF even accepted a lower-than-three-percent target on the ratio of primary surplus to gross domestic product. "This is the most important evidence that the IMF is being extremely flexible with the government." Sağlam wrote.

Yesterday’s article also said the reason for the 10-day suspension in talks was the demand by the IMF to cut spending. "We learned that this cut amounts to 4.5 billion Turkish Liras. The figure was accepted by bureaucrats, but did not get clearance from the prime minister," Sağlam added.