IMF ready to extend $40 billion loan to Turkey
Posted by meb at November 21st, 2008
With investors looking increasingly to governments and other authorities to halt the devastating effects of the global economic crisis, the International Monetary Fund (IMF) has moved to prop up both Iceland and Turkey.
As part of a larger $10.2 billion package, the IMF approved a $2.1 billion loan for Iceland, which has been battered by a severe banking crisis, and hinted that a loan package of up to $40 billion may be readied for Turkey if it seeks to benefit. Citing anonymous sources in Turkey, Reuters reported that the IMF was ready to agree to a precautionary stand-by agreement of $20-40 billion, with the size depending on talks regarding the country’s 4 percent economic growth target for next year.
Turkey’s $10 billion regular stand-by loan accord with the IMF expired in May, and business leaders have been calling for a new agreement to boost the flagging economy. The government has so far been wary of giving positive signals for a stand-by deal with the IMF, saying it will not agree to the IMF’s substantial demands.
A similar amount of money was also floated by the Prime Minister Recep Tayyip Erdoğan on Wednesday evening. Erdoğan said at the Justice and Development Party’s (AK Party) Central Executive Board (MYK) meeting that Turkish economy officials were continuing talks with the IMF in the US and that they were very close to an agreement.
In the meantime, Erdoğan on Wednesday harshly scolded banks that have refused to extend loans to the non-financial sector. He noted that the government will not let anyone take advantage of the crisis. “We are on the same ship, and we will not let it sink. We are a team, and we will withstand the problems together,” he said, underlining the importance of solidarity.
He noted that the Banking Regulation and Supervision Agency (BDDK) should take action as soon as possible and monitor developments closely. “The BDDK was established for this reason; this is their duty and they should do whatever is necessary,” he stressed. Noting that the Turkish banking sector had total revenue of $11 billion this year, he said he wondered why the banking sector was constantly complaining about the crisis. “Banks and the non-financial sector need one another; they are inseparable. But banks are leaving the companies, which are already suffering from the crisis, on their own. This is not acceptable,” he noted.
Economy Minister Mehmet Şimşek said yesterday that “considerable progress” has been made in talks between Turkey and the IMF; however, he added that there were many technical issues that needed further discussion.
“We are working on a program that takes into account Turkey’s interests and priorities. It is too early to speak of the specifics,” Şimşek said at a press conference in response to a question on a recent news report that alleged that Turkey and the IMF had already sealed a deal for $20-40 billion stand-by program. “We are trying to come up with a program that will meet the need for foreign funds to tackle the fallout from the global financial crisis, but we are not at a point to give you details about that matter.”
Recently, Turkish Industrialists and Businessmen’s Association (TÜSİAD) Chairwoman Arzuhan Doğan Yalçındağ criticized the government for refusing to sign a deal with the fund. She had said Turkey would get a $25 billion loan from the deal and would have a chance to use this money as a tool to restructure the burgeoning debt of the non-financial sector. Star daily reported Şimşek as reacting agaist Yalçındağ and saying in response that it was not possible to extend the IMF funds as loans to the non-financial sector. However, Şimşek told the press yesterday that the government had good relations with the Turkish business world. He noted that the government had no intention of arguing with representatives of the business world, disproving recent reports indicating that he had reacted harshly to ideas expressed by TÜSİAD chairwoman Arzuhan Doğan Yalçındağ. “TÜSİAD is one of the most remarkable unions in Turkey. We would like to be in close touch with them,” he added.Furthermore, the minister added, the maximum amount of money Turkey can get is five times its capital subscription, meaning around $12 billion.
In addition to this, heated debates have surfaced among economy officials since the government signaled the possibility of a stand-by deal with the IMF. Several officials from the State Planning Organization (DPT) stated yesterday that it was wrong to announce the amount of money the government will receive from the IMF during a time of crisis. Contradicting Erdoğan’s speech where he hinted that the IMF would provide $40 billion, the officials stated that the loan would never exceed $15 billion. They also mentioned that a precautionary stand-by deal is more likely, noting that the government will take the money, but will not use the funds unless it needs to.
Global lenders IMF give aid in financial crisis
Below are details of some of the IMF’s lending packages and current funding:
* ARMENIA: The IMF approved a three-year, $13.6 million loan program to support its economy up to 2011. It allows Armenia to withdraw $1.9 million from the fund immediately.
* BELARUS: Belarus is seeking a $2 billion loan in what officials have said was a “precautionary” measure against the impact of the global financial crisis. The IMF has put conditions on the issuance of any loan for Belarus, the country said last week, adding that the demands can be met.
* HUNGARY: The IMF, the EU and World Bank agreed to a $25.1 billion economic rescue package for Hungary in the biggest loan for an emerging market economy since the global crisis began. The IMF help came with conditions. It has forced the government to make additional spending cuts, including a reduction in social spending and public sector wages.
* ICELAND: The IMF approved a $2.1 billion loan as part of $10.2 billion package on Wednesday, the cornerstone of international efforts to rescue Iceland. Iceland said that on top of the IMF money, it would also receive $3 billion from Denmark, Finland, Norway, Sweden, Russia and Poland. The program demands that Iceland maintain an appropriately tight monetary policy with restrictions on capital outflow.
* PAKISTAN: Pakistan agreed at the weekend with the IMF on a $7.6 billion emergency loan to stave off a balance of payments crisis and pave the way for a broader economic rescue plan. The IMF said that the credit under the emergency funding would be tied to economic reforms, including higher official interest rates, tighter fiscal policies and a well-funded social safety net to protect the poor.
* SERBIA: Serbia said last week it had agreed a 15-month stand-by program with the IMF to help maintain macroeconomic stability. The agreement includes a 2009 fiscal deficit goal of 1.5 percent of gross domestic product, down from 2.7 percent of GDP in 2008.
* UKRAINE: The IMF approved a $16.5 billion loan package to help Ukraine withstand the financial crisis on Nov. 6. Ukraine received its first tranche worth $4.5 billion four days later.
* IMF FUNDING: As of August 28, the fund had $201 billion in loanable funds. It had 18.3 billion loaned out under a variety of programs to 65 countries. Following the G20 summit in Washington, there was no fresh money for the IMF beyond a unilateral Japanese offer for a $100 billion loan. Saudi Arabia, intensely lobbied by British Prime Minister Gordon Brown to use its oil wealth to augment the fund, pointedly said that it did not come to pay the bills. Russia said on Thursday it will transfer $1 billion to the IMF to help finance rescue packages.
source: Reuters via Today’s Zaman
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