Turkey's flirting with IMF comes to an end
ISTANBUL - Daily News with wires | 3/10/2010 12:00:00 AM |
Turkey’s months-long flirtation with the International Monetary Fund over a possible standby loan agreement has come to an abrupt end. ‘Turkey does not need such a standby,’ Prime Minister Recep Tayyip Erdoğan says, as Deputy PM Ali Babacan adds that Turkey will go forward with its own economic program
The two years of flirting between Turkey and the International Monetary Fund over a possible new standby loan accord came to an end Wednesday as the government announced that talks with the Washington-based fund had been halted.
Speaking to reporters in Istanbul, Deputy Prime Minister Ali Babacan said Turkey has won investor confidence with its own economic policies and the two sides are now preparing for annual consultations on the economy in May.
Prime Minister Recep Tayyip Erdoğan was less diplomatic. “We had previously said we would not say yes, especially if political impositions were in place, involving institutional changes,” Anatolia news agency quoted him as saying. “In the recent period, they [the IMF] did not have an [insistent] approach on a deal. Now the IMF has also seen that Turkey does not need such a standby.”
The annual consultations Babacan mentioned are routine works, as Turkey is an IMF member country, Erdoğan said.
Babacan said the government’s medium-term economic program helped the country make “remarkable progress” last year. "This program earned credibility both in Turkey and abroad,” he said. “We will continue to implement our own program as we have done in the last six months."
[HH] Government tactics
Throughout the global crisis, the Justice and Development Party, or AKP, government kept prospects of a standby alive, as ministers frequently gave the impression a deal was imminent. Partially due to market expectations, the Istanbul Stock Exchange’s main ISE-100 index gained nearly 120 percent since early March last year while the Turkish Lira held strong against the U.S. dollar and the euro.
On Wednesday, the ISE-100 index seemed pretty much unfazed from the end of the IMF episode. “I don't think it is that big of a deal,” said Marc Chandler, the global head of currency strategy at Brown Brothers Harriman. Speaking to the Hürriyet Daily News & Economic Review, Chandler said the global investment climate has improved and Turkey has been upgraded. “The more immediate problem is politics, the government's relationship with the military and inflation,” he said.
In January, the ratings agency Moody's upgraded Turkey's debt rating and changed its outlook from stable to positive a month before Standard & Poor's upgraded the country's sovereign ratings.
“The decision to proceed without an IMF program does not bode well for enhancing market sentiment,” Bloomberg quoted İlker Domaç, chief economist at Citigroup in Istanbul, as saying in an e-mailed report to clients. Turkey is “giving up a valuable anchor when global markets remain skittish,” he said.
“The IMF deal was serving as a safety net and now that margin of error has gone,” Yarkın Cebeci, an economist in Istanbul for JPMorgan Chase, told Bloomberg. IMF loans “would have improved growth prospects,” he said.
[HH] Looming general elections
Prime Minister Recep Tayyip Erdoğan has completed two standby loan programs with the IMF since his government came to office in 2002 – more than any other administration. Erdoğan is preparing for a third general election, which must be held by July next year.
Turkey’s debt to the IMF, at nearly $8 billion, will be paid off completely by 2013. The country has signed 19 standby agreements with the fund since the first one in 1961 but could complete only the last two ones.
The government’s medium-term economic plan, announced in September, pledges that Turkey will pass legislation to restrict the budget deficit in the first quarter of this year and apply it to the 2011 budget.
The Treasury said it invited an IMF team to Ankara after the IMF and World Bank’s spring meetings on April 24 to 25 for regular Article IV consultations. The discussions will allow a “comprehensive evaluation of how relations with the IMF will be carried out in the future,” the statement said. Turkey last held article IV consultations in March 2007.
The IMF backs Turkey’s medium-term economic program, and future cooperation will be based on that, the Treasury said in a statement on its Web site.
Speaking in Istanbul on Wednesday, Ümit Boyner, chairwoman of the Turkish Industrialists and Businessmen's Association, or TÜSİAD, noted the problem of short-term financing. “The crucial issue is whether there will be a supply [of foreign financing],” she told reporters. “I believe the government also has been working on this issue.”
The Turkish economy was hit hard by the global economic crisis, with gross domestic product contracting 8.4 percent in the first three quarters of 2009. According to IMF estimates, the economy will contract by 6.5 percent for the whole of 2009.