Nov. 10 (Bloomberg) -- Turkish Prime Minister Recep Tayyip Erdogan says his $700 billion economy doesn't need more help from the International Monetary Fund to fight the credit crisis. Yes it does, business leaders say.
The leaders, who have mostly backed Erdogan's policies as he presided over a record 26 quarters of economic growth, say Turkey needs the credibility that IMF support brings.
``We must definitely make a deal,'' said Tuncay Ozilhan, chairman of Istanbul-based Anadolu Group, Turkey's biggest beverage maker. ``If only we'd done it earlier.''
Any new deal would likely require Erdogan to lock away the government's checkbook at a time when he and his Justice and Development Party, gearing up for local elections, plan to increase non-interest spending 17 percent in 2009.
The budget plans, the first Erdogan has drawn up without fund oversight from past loan accords, assume 4 percent economic growth next year. That won't be easy to achieve as the credit crunch curbs expansion, Turkish Central Bank Governor Durmus Yilmaz said on Oct. 31. Industrial output fell 5.5 percent in September, the biggest decline since 2002 and the first time in more than six years the country has posted two consecutive falls.
The spending threatens to undermine business and investor support for Erdogan, who in 2005 became the first Turkish prime minister ever to complete an IMF lending-and-austerity program.
Erdogan's numbers ``do not instill much confidence,'' said Ilker Domac, an Istanbul-based economist for Citigroup Inc.
Currency, Stocks
The foreign-currency debts of Turkish non-financial companies exceed their assets by $81 billion, according to Economy Minister Mehmet Simsek. The lira slid as much as 32 percent against the dollar and Turkish stocks fell 23 percent last month as investors fled emerging markets.
Turkey probably will need as much as $20 billion from the IMF because of its short-term foreign debts and its current account deficit, which is forecast by the central bank's fortnightly survey of economists and businessmen to exceed $51 billion this year, said Neil Shearing, an economist at Capital Economics in London.
Deputy Prime Minister Nazim Ekren said on Nov. 8 that Erdogan might get ``some concrete developments'' with the IMF when he is in Washington this week for the G20 summit on the global financial crisis. Simsek said on Oct. 30 that one option is a ``precautionary'' loan accord to be drawn on in times of severe economic stress, though the country will ``take its time'' to work out an agreement.
Message of Discipline
Mehmet Ali Yalcindag, chief executive officer of the country's largest media group, Dogan Yayin Holding AS, said before Ekren's statement that a new IMF agreement should be signed ``immediately'' because it would help ``give the whole world the message that Turkey is stable and disciplined.''
``We will not cast our tomorrows into darkness by bowing to IMF demands in such a time of crisis,'' Erdogan said on Oct. 26, accusing the IMF of seeking to ``squeeze Turkey's throat'' by curbing needed spending programs.
In the past three weeks, Ukraine, Hungary and Iceland have gotten a total of $31 billion in IMF loans. Pakistan and Belarus also requested help.
Under Erdogan, Turkey attracted record flows of foreign investment, helping finance trade deficits. Those flows are now drying up. Foreign direct investment fell 28 percent in the year through August.
The central bank's foreign exchange reserves stood at $70 billion on Oct. 24, compared with total debt maturing in 2009 of $99 billion, according to Merrill Lynch & Co.
`Competitive Advantage'
``Everyone else is trying to secure that funding while Turkey is standing still and losing its competitive advantage,'' said Turker Hamzaoglu, emerging market economist for Merrill Lynch in London. ``You can't buy fire insurance once you have a fire. It tends to be sold in advance.''
Escaping IMF tutelage has been a goal for Erdogan since he became prime minister in 2003, after Turkey had drawn on IMF lending in seven of the previous 10 years. He chose Malaysia for his first official overseas visit and asked then-premier Mahathir Mohamad how he managed without IMF loans during the 1998 Asian crisis. Erdogan told his then-economy minister, Ali Babacan, to take notes.
Since 1961 Turkey has begun 19 IMF loan accords. Erdogan's government satisfied the budgetary and market requirements of the two on his watch and received every loan installment, the only time any government has ever done so.
`Important Project'
``For the last five years, the IMF has been part of Turkey's most important project,'' said Feyhan Kalpaklioglu, chairwoman of Yasar Group, which has interests in food, paper and paint, in an interview. ``When there's turbulence in the world, when growth slows and there are risks for the future, it becomes even more important.''
Turkey's record of budget discipline and well-capitalized banks -- wrought in part by IMF requirements -- will help its economy weather the credit crunch, Standard & Poor's said in an Oct. 23 report. The ratings service, which has cut credit ratings or outlooks for Russia, Hungary, Ukraine, Romania and Croatia in the past month, affirmed its BB- rating with a stable outlook for Turkey.
Turkey's public debt fell to 39 percent of GDP in 2007 from 74 percent in 2002 as Erdogan reined in spending to meet IMF budget targets. Fiscal deficits, which exceeded 16 percent of economic output in 2001, were 0.1 percent in 2006 and 1.3 percent last year.
Impoverished Southeast
Erdogan argues that regions such as Turkey's impoverished and largely Kurdish southeast need investment to improve infrastructure and lift the economy. He's promised $12 billion for a program to improve irrigation and create jobs in the area.
The government's spending plans should take into account the backdrop of ``turmoil in emerging markets,'' the IMF said on Oct. 30 after a team visited Ankara. Fiscal policy should aim to ``rein in financing needs and keep the debt-to GDP ratio on a downward path,'' it said.
``It's hard to see how you can have a meaningful increase in government spending under an IMF program,'' Capital Economics' Shearing said. ``The IMF isn't going to hand Turkey $20 billion if it thinks the money will just be used to boost domestic demand and store up problems for the future.''
Posts
No comments:
Post a Comment