Sunday, November 09, 2008

Turkey Wary of IMF Lending

NYTimes: Turkey Tries to Resist Aid from IMF

Yahoo! News UK: Turkey Disagrees with IMF on Spending

BBC: IMF approves $16bn for Turkey (February, 2002)

 

While many developing countries have been flocking to the IMF for assistance in surviving the fallout from the global financial crisis, Turkey, for one, is not about to be caught hat in hand at the IMF’s door.  In a series of statements to reporters as well as the World Economic Forum, Turkey’s economic officials have insisted that they do not need, or want, another loan from the IMF. 

For a nation that had the distinction of being the world’s largest borrower from the IMF just 6 years ago, this is a dramatic change in attitude.  Turkey also had a $10bn stand-by loan agreement with the IMF that expired in May of this year.  But Prime Minister Recep Tayyip Erdogan has expressed unwillingness to sign another loan agreement with the IMF if it means reducing economic growth through restrictive spending policies. 

Turkish economic officials insist that their banks are well capitalized, their foreign exchange reserves adequate, and their public and private debt relatively low as a percentage of gross domestic product (GDP).  Deputy Prime Minister Nazim Ekren, who is in charge of economic coordination, has also maintained a goal of 4 percent economic growth for 2009 (already down from the 7 percent growth Turkey has averaged since 2002). 

But many economists speculate that this goal is unreachable.  They believe that growth will not exceed 3 percent and could fall as low as 2 percent.  The Turkish population is young and continues to grow at a fast pace, contributing to the nation’s roughly 40 percent youth unemployment rate.  Before the financial crisis, foreign investment poured into the nation because of the high expectations for growth.  Many Turkish corporations took on large amounts of foreign debt that UBS estimates far exceed their dollar assets.  But as the financial crisis has expanded to reach developing countries once thought insulated from the western downturns, investors have begun pulling their capital out of Turkey as quickly as they invested it. 

Many in Turkey’s business and financial sector have been calling for another loan agreement in order to maintain investor confidence in the Turkish economy and financial sector as foreign investment flees.  But the nation is finally reaping the benefits after years of suffering through extreme fiscal restraint in order to comply with IMF loan terms and gain economic stability, and the government is not ready to impose such restraints again.  Approaching local elections are adding to the pressure on the government to spend more money, particularly to help out local administrations.

Turkish officials are expected to restart the stalled talks with the IMF at the meeting of G20 industrial and developing nations on November 15th, but the fundamental disagreement about IMF loan conditions remains and neither side seems willing to budge.

Discussion:  What do you think of the Government’s argument that the Turkish economy is fundamentally strong?  Is it possible to overcome the wave of foreign investment leaving the country without foreign aid?  The answer to this question may depend on the duration of foreign investor’s wariness of emerging economies.  Do Turkey’s foreign investors have legitimate reasons to be scared or are they just following the herd in a pessimistic bear market?

1 comment:

John said...

In recent years the IMF has been relegated to the sidelines with its loan portfolio diminished as well as its role on the international stage. Many countries that had been borrowers sought funds in capital markets and built huge reserves so they would not have to come hat in hand to the IMF. In recent years the IMF has been relegated to the sidelines with its loan portfolio diminished as well as its role on the international stage. Many countries that had been borrowers sought funds in capital markets and built huge reserves so they would not have to come hat in hand to the IMF.

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Bobwilliams
non-traditional