Gov’t ponders an IMF-free future

Bloomberg

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Economy Minister Ali Babacan said Monday that Turkey was preparing for a future "with or without lending" from the IMF.

Babacan will meet John Lipsky, deputy managing director of the fund, in Ankara in the next two weeks as the country continues its year-old talks with the IMFon a support program, the minister said in a televised interview on NTV news channel.

"What we’re working on is preparation for what will be necessary with or without the IMF," Babacan said. Turkey has not invited an International Monetary Fund delegation to Ankara since January when talks broke down over the government’s spending plans. Prime Minister Recep Tayyip Erdoğan said on June 4 that he would not agree to a "damaging" lending accord and investors should not take IMF loans for granted.

Stocks, the Turkish Lira and bonds dropped in response to the comments. The drop in lira-denominated debt raised the average yield 18 basis points to 13.09 percent at 1:30 a.m. in Istanbul on Monday, an index of securities tracked by ABN Amro showed.

Istanbul Stock Exchange’s benchmark IMKB-100 index plummeted nearly 1,100 points, or 3.15 percent, to close Monday at 33,655 points. The index has lost 6.5 percent since June 1. The U.S. dollar gained nearly 2 percent against the Turkish Lira and was trading at 1.5665 liras at 5:00 p.m. Monday evening.

"Bond yields are rising because hopes of an IMF deal materializing in the short term faded," said Burak Ustay, head of treasury at West LB in Istanbul.

"Babacan failed to give any real insight into the state of negotiations with the IMF over a new funding arrangement," wrote Timothy Ash, head of emerging-market economics in London at Royal Bank of Scotland Group.

Predictions to be revised

Turkey is revising its three-year economic outlook and will probably change a prediction of a 3.6 percent contraction in gross domestic product this year "for the worse," Babacan said. That would take the official forecast closer to the fund’s prediction of 5.1 percent contraction.

Babacan also said that the government would take steps to ensure the budget posts a surplus before interest payments on debt in the coming years. The government will announce the future of temporary sales tax cuts on cars and home appliances "a few days" before they expire on June 15, he said.

Turkey’s first recession in seven years has reduced revenue from import and company taxes just as the government ups expenditure against unemployment.

In the first four months of 2009, the overall budget deficit rose to 20.1 billion Turkish liras, double the original goal for the whole of the year. It is also about 42 percent of a revised target of 48 billion liras the government announced April 13.

The IMF is pressing for steps to ensure the worsening budget is temporary, calling for better tax collection and legislation to limit future deficits and borrowing.

Lipsky will visit Turkey on June 15, business daily Referans reported Monday. The visit is designed to inspect preparations for the fund’s annual meeting, to be held in Istanbul on Oct. 6 and Oct. 7, the newspaper reported.