Gov’t may seek alternative IMF deal

Bloomberg

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Turkey needs to get strong backing from the IMF for its planned medium-term program, which will outline economic plans for the next three years, to achieve an alternative arrangement, Şengül Dağdeviren, chief economist for ING in Istanbul, wrote Friday in a research note. A flexible credit line would "do the job" for Turkey, said Simon Quijano-Evans, an economist at Credit Agricole Cheuvreux in Vienna.

Talks between Turkey and the IMF on a new accord, which started more than a year ago, have faltered as Turkey rejected the Fund’s demands for spending cuts and measures to make the tax collection agency independent of political control. IMF loans would help support the Turkish Lira and reduce the government’s need to borrow to finance a widening budget deficit.

Economy Minister Ali Babacan’s comments on June 8 that Turkey is preparing for a future with or without IMF lending "increased the possibility an accord agreement will fail, at least with regard to the previously indicated stand-by arrangement," Dağdeviren said.

The IMF wouldn’t give Turkey a flexible credit line, said Timothy Ash, head of emerging-market economics at Royal Bank of Scotland Group in London.

"The Fund’s concerns about Turkey’s public finances and debt sustainability probably suggests it wouldn’t be comfortable with a flexible credit line," Ash said. "The fundamental story in Turkey probably warrants a credit line, but I can’t see it happening."