By Selcuk Gokoluk
Turkey will face a balance of
payments problem next year that could snuff out growth if the
government does not overcome its reticence to join the queue of
emerging countries seeking International Monetary Fund help.
Politicians are loath to ask for IMF help before municipal
elections next year given the public backlash against the six
years of fiscal austerity demanded by the IMF in return for
helping Turkey through a financial and economic crisis in 2001.
However, economists say its $70 billion foreign exchange
reserve is not a large enough buffer given the current account
deficit is seen rising to $50.4 billion in 2009 and the funding
need of the private sector is estimated at around $90 billion.
Turkey’s business community has therefore been calling for
an IMF loan deal to limit the fallout from a global financial
crisis which has already forced Ukraine, Hungary, Iceland and Serbia to seek IMF help.
Such aid comes with strings attached and while the
government is reluctant to accept big spending curbs and other
painful steps that might exacerbate the economic slowdown,
economists say IMF credit may be the only source of credit if
Turkey finds itself in a balance of payments difficulties.
“Turkey is not an EU member with access to the European
Central Bank credit lines that have been made available, nor
does it have a swap line with the (United States’) Fed as do a
few other emerging markets now to boost dollar liquidity,”
Kristin Lindow, Moody’s Investors lead sovereign analyst for
Turkey, told Reuters.
Turkey is carrying out accession negotiations with the
European Union, but is not expected to join the 27-members bloc
for several years at the earliest.
Turkey’ economy is in much better shape than it was in 2001,
when it had a severe crisis and signed one of the biggest ever
IMF bailouts but some economists say the Treasury may not be
able to maintain its current cash holding.
Government spending is expected to pick up in coming months
and appetite for Turkish bonds has faded as investors favour
safe-heaven U.S. dollar assets.
Analysts say Ankara needs $15-$20 billion IMF credit to meet
its short-term financing needs, even if such help is made
contingent on measures such as cutting spending, raising taxes,
accelerating privatisation, and increasing interest rates to
correct fiscal and external imbalances and control inflation.
“For the first time in a couple of years, the balance of
payment will be a binding concern for Turkey in the sense that
Turkish corporates might have to cut back their borrowing from
international markets,” said Reinhard Cluse, economist at UBS.
It is estimated the non-bank corporate sector will roll over
roughly $20 billion in debt in the coming months.
Curbs on firms’ ability to borrow will dampen economic
activity, which has already weakened.
The economy expanded by 1.9 percent in the second quarter, a
a sharp slowdown from 6.7 percent in the first quarter, and some
economists expect it will grow by only 2-3 percent next year.
Turkish banks have strong loan/deposit and capital adequacy
ratios compared with their western peers and are tightly
regulated, but this is not the case for manufacturing firms.
“I don’t think banks will have a problem rolling over their
debt. The unknown factors are more in the non-financial sectors.
The non-financial sector firms borrowed $18 billion in the first
eight months. This is a very high figure,” said JP Morgan Chase
senior economist Yarkin Cebeci said.
“An IMF deal will cut the size of the shock waves even if it
can’t stop the financial volatility. More importantly is that an
IMF deal will comfort both the financial and non-bank corporate
sectors,” Cebeci added.
An IMF deal would also help shore up financial market
sentiment, economists said. Global financial turmoil has hit
Turkish markets in the last two months, with the lira losing one
third of its value and stocks halving in value.
“An IMF deal will ensure a gradual and softer fall. If the
market attempts to make a correction on their own, the fall will
be sharper and faster…I mean further slowdown of growth and
more lira weakening,” Merrill Lynch EMEA economist Turker
(Editing by Swaha Pattanaik)