Turkey delays loan talks with IMF

Thursday, 11 March 2010

Turkey won’t conduct further talks with the International Monetary Fund on a potential new standby loan until at least May, economy minister Ali Babacan said Wednesday, ending more than a year of on-again off-again talks on a loan facility favored by economists but resisted by the government.

Turkey’s public finances have survived the downturn relatively well so far. IMF and Turkish officials have stressed that a standby facility wouldn’t represent a bailout for an economy in need of rescue, as in some other emerging markets. Instead, it would be a standard IMF facility designed to stimulate growth by providing the government with funds it would otherwise have to raise in the markets, crowding out private sector borrowers.

 Turkey has wound down more than 18 months of inconclusive talks with the International Monetary Fund and signaled that it plans to face its problems on its own. Its prospects in doing so look brighter than for many developed markets. But Turkey’s ability to raise finance —with a 30-year dollar bond sale in January being heavily oversubscribed and growing depth in local capital markets—means an IMF deal is no longer vital, even if it would have boosted policy credibility.

debt to GDP is forecast by Fitch Ratings to hit 47.6% by the end of 2010, it should decline in 2011—unlike in many developed countries. Its banking system is solid and the country has won credit ratings upgrades that have taken it to near-investment-grade status. The government and central bank’s track record suggest they can pass the tests facing them. If they do, Turkey should emerge stronger still from the crisis.