‘Turkey may not need IMF loan accord’
Posted by meb at September 8th, 2009
Turkish Central Bank Governor Durmuş Yılmaz said the country might not require a loan from the International Monetary Fund so long as the government maintains fiscal discipline.
A loan has become less essential since the current account deficit narrowed, Yılmaz said in an interview in London on Saturday at a meeting of finance ministers and central bankers from the Group of 20 nations.
Turkey and the IMF have been discussing a possible loan program of between $20 billion and $40 billion for more than a year. The prospect of an agreement has helped bond yields to single digits and spurred a 68 percent rally in the main stock index this year.
“If Turkey on its own can deliver the results that are expected of an IMF program, it’s much better for the country,” Yılmaz said. “But sometimes the external motivation is needed.”
The current-account deficit narrowed for the 10th straight month in June, helping reduce the need for external financing. Falling demand for imported goods is helping narrow the gap, which the government expects to shrink to less than $10 billion this year, or about 1.3 percent of estimated economic output. The deficit was $41.7 billion in 2008.
Turkey’s future relations with the IMF will be clarified during the fund’s annual meetings in Istanbul in early October, Prime Minister Recep Tayyip Erdoğan said Aug. 28.
Going it alone
The government needs to consider the trade-off between higher growth with IMF loans and higher unemployment in the event that it decides to go it alone, Yılmaz said.
“Can Turkey do without an IMF program? Yes it can,” he said. “In the final analysis, an agreement with the IMF is a political decision.”
Progress on a new loan accord has stalled since the IMF’s last visit to the country in January because of disagreement over government spending, which created a budget deficit of 23.2 billion Turkih Liras in the first half of this year from a surplus a year ago.
Erdoğan pledged to end Turkey’s reliance on IMF cash when winning power in 2002. He faces re-election in two years time. His government completed a $10 billion accord with the fund in May last year.
Inflation has since slowed to a 39-year low, dropping to 5.2 percent in May as the global financial crisis crimped domestic demand. That has helped the Central Bank cut the benchmark rate by 9 percentage points in 10 months to a record 7.75 percent to help reverse an economic recession.
The economy contracted 13.8 percent in the first quarter of the year, the deepest decline since quarterly records began in 1987.
Inflation
“The second quarter was weaker than expected but it’s an improvement on the first quarter,” Yılmaz said. “The trend is upwards and is improving, the rate of slowdown has reduced.”
The inflation rate unexpectedly fell to 5.3 percent last month from 5.4 percent in July. Yılmaz said he expected a further slowing in price increases in the coming months.
“The risk to the inflation rate is on the downside not the upside,” he said.
The bank’s inflation target for this year is 7.5 percent and its most recent forecasts, announced July 29, are for a year-end rate of 5.9 percent. The target for 2010 is 6.5 percent.
Yılmaz called on the government to announce a medium-term economic program that “will return the country to fiscal discipline while maintaining low inflation and single-digit interest rates.”
source: Hurriyet daily news
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