Businesses concerned over gov’t IMF aversion

Bloomberg

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Turkish Prime Minister Recep Tayyip Erdoğan says his $700 billion economy does not need more help from the International Monetary Fund, or IMF, to fight the credit crisis.

Yes it does, business leaders say. The leaders, who have mostly backed Erdoğan's policies as he presided over a record 26 quarters of economic growth, say Turkey needs the credibility that IMF support brings.

"We must definitely make a deal," said Tuncay Özilhan, chairman of Istanbul-based Anadolu Group, Turkey's biggest beverage maker. "If only we had done it earlier.''

Any new deal would likely require Erdoğan to lock away the government's checkbook at a time when he and his Justice and Development Party, gearing up for local elections, plan to increase non-interest spending 17 percent in 2009.

The budget plans, the first Erdoğan has drawn up without fund oversight from past loan accords, assume 4 percent economic growth next year. That will not be easy to achieve as the credit crunch curbs expansion, Turkish Central Bank Governor Durmuş Yılmaz said Oct. 31.

Spending threat
The spending threatens to undermine business and investor support for Erdoğan, who in 2005 became the first Turkish prime minister ever to complete an IMF lending-and-austerity program. Erdoğan's numbers "do not instill much confidence," said İlker Domaç, an Istanbul-based economist for Citigroup Inc.

The foreign-currency debts of Turkish non-financial companies exceed their assets by $81 billion, according to Economy Minister Mehmet Şimşek. The Turkish lira, or YTL, slid as much as 32 percent against the dollar and Turkish stocks fell 23 percent last month as investors fled emerging markets.

Turkey probably will need as much as $20 billion from the IMF because of its short-term foreign debts and its current account deficit, which is forecast by the Central Bank's fortnightly survey of economists and businessmen to exceed $51 billion this year, said Neil Shearing of Capital Economics in London.

Deputy Prime Minister Nazım Ekren said Nov. 8 that Erdoğan might get "some concrete developments" with the IMF when he is in Washington this week for the G20 summit on the global financial crisis. Şimşek said Oct. 30 that one option is a "precautionary" loan accord to be drawn on in times of severe economic stress, though an agreement will take time. Mehmet Ali Yalçındağ, chief executive officer of Doğan Media Group, the country's largest media group, said before Ekren's statement that a new IMF agreement should be signed "immediately" because it would help "give the whole world the message that Turkey is stable and disciplined.'

"We will not cast our tomorrows into darkness by bowing to IMF demands in such a time of crisis,'' Erdoğan said Oct. 26, accusing the IMF of seeking to "squeeze Turkey's throat" by curbing needed spending programs. In the past three weeks, Ukraine, Hungary and Iceland have gotten a total of $31 billion in IMF loans. Pakistan and Belarus also requested help.

Under Erdoğan, Turkey attracted record flows of foreign investment, helping finance trade deficits. Those flows are now drying up. Foreign direct investment fell 28 percent in the year through August. The Central Bank's foreign exchange reserves stood at $70 billion Oct. 24, compared with total debt maturing in 2009 of $99 billion, according to Merrill Lynch & Co.

Competitive advantage
"Everyone else is trying to secure that funding while Turkey is standing still and losing its competitive advantage," said Türker Hamzaoğlu, emerging market economist for Merrill Lynch in London. "You cannot buy fire insurance once you have a fire. It tends to be sold in advance."

Escaping IMF tutelage has been a goal for Erdoğan since he became prime minister in 2003, after Turkey had drawn on IMF lending in seven of the previous 10 years. Since 1961 Turkey has begun 19 IMF loan accords. Erdoğan's government satisfied the budgetary and market requirements of the two on his watch and received every loan installment, the only time any government has ever done so.

"For the last five years, the IMF has been part of Turkey's most important project,'' said Feyhan Kalpaklıoğlu, chairwoman of Yaşar Group, which has interests in food, paper and paint, in an interview. "When there is turbulence in the world, when growth slows and there are risks for the future, it becomes even more important."

Turkey's record of budget discipline and well-capitalized banks will help its economy weather the credit crunch, Standard & Poor's said Oct. 23. The ratings service affirmed its BB- rating with a stable outlook for Turkey.

Turkey's public debt fell to 39 percent of GDP in 2007 from 74 percent in 2002 as Erdoğan reined in spending to meet IMF budget targets.