[stop-imf] Turkey sells 'family silver' to cover rising foreign currency needs

[Robert Weissman]

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      Turkey Daily News


      Turkey sells 'family silver' to cover rising foreign currency needs

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          /Sunday, September 18, 2005/

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*In the first nine months of 2005, privatization revenues reach $16.2
billion, while the C/A deficit has reached $15 billion in seven months *

By Rag=C3=84=C2=B1p Erten

ISTANBUL - Turkish Daly News

Turkey's relentless privatization drive has won accolades from the
International Monetary Fund (IMF) and brought home a whopping $16.2
billion in the first nine months of 2005, but the foreign currency needs
of the country is also rising at a rapid pace.

Turkey has sold state-owned enterprises, like Turk Telekom for $6.55
billion, last month, and refiner T=C3=83=C2=BCpra=C3=85=EF=BF=BD's 51 perce=
nt shares for a
record $4.14 billion last week. Erdemir steelworks is the next to go
later this month in a drive that could be compared to selling the family
silver to cover one's debts.

It is true that Turkey has attracted a total of $21.9 billion in the
first seven months of 2005 in foreign capital mainly to benefit from
Turkey's high real interest rates. In the same period, Turkey's foreign
currency needs -- or current account deficit (C/A) -- have risen to
$15.030 billion from $10.718 billion in the same period last year.

There is no mood of panic in the government or the in the IMF that
Turkey's rising C/A deficit could reach as high as $22 billion, as long
as it is covered by foreign capital inflows.

Turkey's foreign currency needs are rising at a time when economic
growth and exports are is slowing down.

Turkey's gross national product (GNP) has grown 3.4 percent so far in
the second quarter of 2005, over the second quarter of last year. GNP
growth, which signifies the growth of the economy, was 15.7 percent in
the second quarter of 2004.

The State Institute of Statistics (D=C3=84=C2=B0E) said the GNP growth in t=
he
first half of this year was 4.3 percent, against a 5 percent target for
the whole of this year.

Mahfi E=C3=84=EF=BF=BDilmez, a former undersecretary of treasury, said Turk=
ey's GNP
growth in 2005 would likely to be 3 percent and total GNP to reach $330
billion for 2005.

=C3=AF=C2=BF=C2=BDWhen we put this data together, the ratio of current acco=
unt deficit
to GNP would be around 7 percent =C3=A2=EF=BF=BD=C2=A6 in the past if someb=
ody made an
announcement and said this ratio would be 5 percent, everybody would
have expectations of a crisis. Now we talk about 7 percent and there is
no talk of a crisis,=C3=AF=C2=BF=C2=BD E=C3=84=EF=BF=BDilmez said in his co=
lumn in center-right
Radikal daily.

He added that there could be no restrictions on foreign trade and
imports under global trade rules. The Turkish lira is floating against
other currencies and no intervention is possible in order to devalue the
local currency and stem imports to curb the foreign currency needs of
the country.

=C3=AF=C2=BF=C2=BDTherefore privatization is the only way to finance the cu=
rrent
account deficit and keep the sentiment on the economy positive. This is
the way to lower borrowing. And with the help of economic trends, Turkey
is managing it very well,=C3=AF=C2=BF=C2=BD E=C3=84=EF=BF=BDilmez added.

Finance Minister Kemal Unak=C3=84=C2=B1tan last week said interest in inves=
ting in
Turkey has increased as he announced the results of Turkey's
privatization program so far this year. =C3=AF=C2=BF=C2=BDWe have privatize=
d in the
last three years a total of $15.2 billion in government assets. In the
first nine months of 2005 total privatizations are $13.2 billion. When
you add Atat=C3=83=C2=BCrk Airport, the revenues so far this year reach $16=
.2
billion and total revenues in the last three years to $18.2 billion,=C3=AF=
=C2=BF=C2=BD
the minister said.

Apart from privatizations, direct foreign investment into Turkey has
been rising this year, especially with foreign banks snapping up shares
in Turkish banks.

Some analysts say the rise in foreign direct investments and
privatization revenues would raise the quality of foreign currency
inflows and lower borrowing needs.

But prominent economist G=C3=83=C2=BCng=C3=83=C2=B6r Uras, in his article i=
n financial daily
D=C3=83=C2=BCnya, said a total $39.2 billion dollars of foreign capital ent=
ered
Turkey between July 2004 and July 2005 and he said Turkey was covering
its foreign currency needs mainly by borrowing.

=C3=AF=C2=BF=C2=BDIt has been calculated that $21 billion of the $39.2 bill=
ion is
outright debt to the outside world,=C3=AF=C2=BF=C2=BD Uras said. He gave th=
e breakdown
of how $39.2 billion in foreign capital had been used: =C3=AF=C2=BF=C2=BDOf=
 these,
$19.9 billion have been used to finance the current account deficit,
$14.9 billion to bolster foreign currency reserves and $4.2 billion in
debt repayment to the IMF,=C3=AF=C2=BF=C2=BD Uras said.

Mahfi E=C3=84=EF=BF=BDilmez, in his column in Radikal, said as long as the =
C/A
deficit is financed the size of the deficit is unimportant.

=C3=AF=C2=BF=C2=BDThe problem arises when expectations exist that the growi=
ng deficit
cannot be financed because people start to ask for payments of their
debt and repatriate the money they brought for portfolio investments,
and the current account deficit that seemed to have been financed
becomes a problem,=C3=AF=C2=BF=C2=BD E=C3=84=EF=BF=BDilmez wrote.

So this is why it is important to lower foreign debt, which Uras said
totaled $21 billion in the last 12 months and why selling the =C3=AF=C2=BF=
=C2=BDfamily
silver|=C3=AF=C2=BF=C2=BD at the right time -- when economic growth, along =
with exports
have been declining -- to lower outright debt that has the propensity to
flee the country on very short notice.

=C3=82=C2=A9 2005 Dogan Daily News Inc. *www.turkishdailynews.com.tr*