Greek effect on Turkey limited: IMF official

ISTANBUL – Anadolu Agency

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The direct channels through which financial problems in Greece can spill over to Turkey are very limited, according to the Senior Resident Representative of the International Monetary Fund (IMF) to Turkey, Srikant Seshadri. 

“The direct economic, trade, and financial links between Turkey and Greece are very limited. Therefore, the direct channels through which problems in Greece can spill over to Turkey are also very limited. There are also more indirect channels to keep in mind,” he told Anadolu Acency. 

“In the past, a few unanticipated events related to Greece have caused brief episodes of higher aversion to risk among global investors, and brief periods of higher volatility in currency markets world-wide. But there are good reasons to hope that the necessary lessons will be drawn, and hopefully, the scope for unanticipated events related to Greece will be lower in the future.”

Turkey has important economic matters to overcome in the short run but the future of the country is bright, according to Seshadri.

“Of course, in the short to medium term, there are important economic issues to be addressed, in order to ensure that bright long-term future,” he said. 

“By taking on these issues, Turkey has a golden opportunity to seize this important moment, and once again demonstrate to the world its well-known dynamism and  resourcefulness,” Seshadri said.

“In a purely financial sense, higher interest rates and a stronger dollar for a prolonged period could make it more expensive for those who have borrowed predominantly in dollars to repay or refinance their dollar-denominated debts,” the official said. “In a broader economic sense, such episodes of prolonged dollar strength, accompanied by higher interest rates, might reduce capital flows to emerging economies as a whole.”

Seshadri said that these capital flows, in turn, finance investment  and growth.

“Indeed, past episodes of prolonged dollar appreciation in each of the last three decades have been associated with difficulties in some emerging-market economies, so the situation needs to be watched carefully.

“However, such effects can be managed. Broadly speaking, three attributes will be helpful for countries in coping with such periods. In addition to having a flexible exchange rate, and strong indicators of economic health, relatively low mismatches between the currencies in which borrowers earn their income and the currencies in which they have to repay debt, will be helpful in managing the transition smoothly.”