Turkish Central Bank Governor Durmus Yilmaz said on Monday he would welcome some form of arrangement with the International Monetary Fund, adding to growing calls for the government to strike a deal with the fund. Turkish business leaders have called on the government to secure another loan deal with the IMF to help limit the fallout from the global financial crisis that has already forced Ukraine, Iceland and Hungary to seek help.
Turkey's last standby loan deal with the IMF expired in May and IMF officials are currently in Ankara for post-programme monitoring and talks on a possible follow-up deal. "At this stage we do not need IMF cash... but there is uncertainty about what we will face in the coming term. So, we view it as useful to make some arrangements to give confidence to international markets," Yilmaz was quoted by state-run Anatolian news agency as saying in northern Cyprus. "But this is a political decision and up to the government," he added.
Turkish shares have fallen more than 50 percent this year and in the last three weeks alone the lira currency has lost a third of its value against the dollar. The benchmark bond yield is also trading at a new four-year high.
Analysts say they expect an announcement on a follow-up deal as early as next week as the government was no longer able to drag its feet over what kind of deal it would make given market turmoil. Turkey must agree on some form of arrangement as it still owes the IMF $9.3 billion.
The lira gained some ground against the dollar because of increasing expectations of a new deal, analysts said. The lira stood at 1.6840 against the dollar at 1220 GMT. Analysts said the government may surprise and announce a standby loan deal rather than a precautionary one to give it access to funds if need be.
"Turkey has no option but to call on the fund and the longer they delay it, the greater the risk is of a hard landing and a greater fall in the lira," said Emerging Markets economist Neil Shearing at Capital Economics.
He said Turkey might agree on an even bigger package than Ukraine, for $20 billion because of the size of Turkey's current account deficit, expected to exceed $50 billion next year. The government has so far resisted another standby loan agreement, saying its economy was strong enough to stand on its own feet after recovering from a 2001 financial crisis.
Foreign direct investment and foreign funds flowing into high-yielding instruments have been key to fund Turkey's massive current account deficit, but a global squeeze on liquidity could threaten this.
On Sunday, Erdogan rattled markets by saying: "In such a crisis environment we cannot darken our future by bowing to the wishes of the IMF." However, analysts said his comments were for domestic political consumption ahead of March municipal polls. The Turkish government has also increasingly warned of slowing economic growth as it now acknowledges the global credit crisis will have an impact, and has begun to announce measures to try and shore up the economy.
"I think Erdogan is trying to prepare the environment and the electorate for a deal. I think he understands the need for an IMF deal," said Yarkin Cebeci, an economist at J.P. Morgan Chase in Istanbul. "I think the markets would like to see a standby deal, not a precautionary one. We should not rule out a standby deal because in today's environment it is easier to advocate such an programme as other countries are doing similar deals," he said.
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