Economy Minister Mehmet Simsek said Turkey has yet to agree loan terms with the International Monetary Fund but remains hopeful of reaching a deal, which analysts said was now likely to take the form of a full stand-by loan.
Turkey, whose economy has begun to slow down and lira currency to depreciate sharply, is lining up for help to counter the kind of economic pressures that have already forced Iceland, Ukraine, Hungary, Serbia and Latvia to go cap in hand to the IMF.
A stand-by agreement would give Ankara automatic access to IMF funds but come with more conditions attached than the more flexible precautionary deal previously favored by the ruling AK Party, which is also preparing an economic stimulus package.
Business leaders say an IMF deal would be an important stabilizing force, fearing Turkey's $74 billion currency reserves are no longer a large enough buffer given more than $100 billion of external debt falling due in the next 12 months and a current account deficit seen at some $35 billion in 2009.
“We will make a program if we can persuade the IMF on the conditions. There is a debate on the content of the program,” Simsek told a conference.
Last week Prime Minister Tayyip Erdogan said, according to senior AK Party sources, that a deal could be reached to give Turkey access to $20 billion - $40 billion in credit if needed.
“I think it will be a regular stand-by agreement because Turkey needs the funds, so what is the point of going for a precautionary deal that gives the option of receiving funds,” JP Morgan economist Yarkin Cebeci said.
“If it's a stand-by agreement I expect it in the range of $15 billion-$20 billion and this time in Turkey there is nearly a total consensus (among the) public that an IMF program is needed.”
Turkey's last $10 billion regular stand-by loan accord, the latest in a series of loan programs which helped it emerge from a 2001 financial crisis, expired in May.
The government has been negotiating hard with the IMF over terms because it is reluctant to accept spending curbs and painful steps that might exacerbate the economic slowdown ahead of municipal elections in March. A precautionary deal would allow more flexibility on spending.
The IMF wants budget plans for 2009 to be based on a more conservative growth forecast than the government's 4 percent projection, economists say. The Organisation for Economic Cooperation and Development said it expected Turkish economic growth to slow to 1.6% in 2009 from 3.3% in 2008.
“The IMF seeks very significant fiscal adjustments,” Simsek said, signaling that the IMF is pressing Turkey for tighter curbs on government spending and aim for a high primary surplus, which excludes interest payments on debt.
The lira, which lost as much as a third of its value over two months, has regained some ground against the dollar on expectations of an IMF deal and a government economic stimulus package expected to include improved credit lines for companies and the removal of certain taxes.
The government also plans to raise the ceiling for state guarantee on savers' deposits in banks, Turkish newspapers reported.
“Work is continuing on the economic package. I will announce it when it's done,” Erdogan told reporters.
An IMF deal would also help restore credibility to Turkey's economic policy in the event that credit markets stop functioning, Simsek said. Government officials have increasingly been touting the benefits of an IMF deal after saying for months Turkey had no need for IMF money, which suggests a deal will be struck.
Turkey's banks, hardened by the 2001 crisis, have been largely spared the turmoil which has ravaged their Western peers, but its markets have been caught up in growing investor aversion towards emerging economies.
Turkish companies have begun shedding jobs and trimming production as key export markets, particularly Germany, weaken. (Reuters)