Turkey and the IMF Close to Negotiating a Deal

Sources: Forbes, Turkish Assets Soar on Economic Aid Hopes; Associated Press Turkey, IMF in Talks for Possible Loan; Hürriyet, Turkey, IMF Deal Nears; Hürriyet, Turkish Government Plans 83 Major Steps to Tackle Global Crisis; Financial Times, Ankara Hopeful on IMF Deal

Despite Turkish newspaper Zaman's report that Turkey agreed to a $19 billion loan, the Turkish government claimed on Monday to still be negotiating the size of the deal. However, even the expectation of IMF support gave the Turkish economy a boost – on Monday, the Turkish lira gained five percent against the dollar and stock prices climbed by 9.88%. This loan follows a $10 billion three-year IMF standby arrangement that ended in May.

Though the Prime Minister has been cautious about accepting a new IMF loan, business groups have pressured the government to come to an agreement. They want guarantees of financial support for the country in case of an economic emergency. This weekend, Prime Minister Erdoğan was optimistic about the loan, but at the same time concerned about the conditions attached. Turkey and the IMF are still resolving disagreements both about the size of the loan and its conditions. Erdoğan had previously told legislators to expect $20 – $40 billion, so if the $19 billion figure becomes final it would be on the low end of what was hoped for. It is also unclear whether this is a loan involving immediate access to funds or simply another precautionary agreement.

Whatever the amount and nature of the final deal, Turkey will have to take at least some steps of its own to improve the country's economic situation. The government plans to announce details of some measures including an increase in the state bank deposit guarantee this week. The government's plan would use not only IMF money but also funding from a number of other external sources including the World Bank and European Investment Bank and money from public land sales. It includes eighty-three steps, though these range from abstract in nature – increased cooperation, for example – to more concrete fiscal and monetary policy adjustments. The IMF has also asked Turkey to lower it's growth target for 2009 to two percent, stop investing, and lower the local administrations' income, but Erdoğan has so far refused these conditions.

Like other developing economies, the effect of the global crisis on Turkey has been gradual, but by now it has clearly taken some hold. The flight of foreign capital is a major reason for loan negotiations, and Turkey is also plagued by large trade deficits and a falling currency. However, local elections are coming early next year and politicians are particularly concerned about negotiating a deal with heavy conditions just before voters go to the polls.

1) If you were a Turkish voter, would a heavily conditioned IMF loan make you angry with your current national leaders, or would you be relieved that the country has access to funds given the current global financial climate?

2) Do you think the IMF will consider relaxing its fiscal policy conditions at all when negotiating loans with Turkey or other countries that need funding yet are reluctant to accept very harsh conditions?