[stop-imf] Turkey can forgo IMF loans-Economy Minister

[robert weissman]

http://www.guardian.co.uk/feedarticle?id=7393231

Turkey can forgo IMF loans-Economy Minister
By Daniel Bases
March 18, 2008

NEW YORK, March 17 (Reuters) - Turkey's economy can withstand global
economic turmoil, Economy Minister Mehmet Simsek told Reuters, to the
point that a new IMF stand-by agreement is not needed and is indeed
"unlikely".

The International Monetary Fund's $10 billion loan agreement with
Turkey, which expires in May, has been an anchor for Turkey's economy,
helping it rebound strongly from a financial crisis in 2001.

Investors, wary of Turkey's reliance on external financing, have been
clamoring for information on what direction Turkey will take with the
IMF when the current program expires given the near seizing up of the
global credit markets.

"I feel comfortable the public sector can carry on without additional
funding from the fund. So a stand-by arrangement is unlikely," Simsek
said in a late interview with Reuters on Monday.

Simsek was in the United States for speaking engagements and meetings
with investors. He will hold talks with IMF Managing Director Dominique
Strauss-Kahn in Washington on Thursday.

"I do not believe that Turkey needs a stand-by agreement," he said.
Instead it is considering either post-program monitoring or the use of a
precautionary stand-by agreement.

"No decision has been made. That decision will be made by May," he said,
noting that due to parliamentary delays there is now a need to merge all
outstanding reviews and try to complete them before the IMF program expires.

A key IMF concern has been the Turkey's failure to pass a long-delayed
reform of its social security system.

Business groups have criticized the government for slow progress on
measures to stimulate a slowing economy and pushing reforms such as
social security, which is now sitting in parliament for a vote.

Parliamentary approval of the reform, which will raise retirement ages
in Turkey, is a pre-condition for the IMF to release a $1.3 billion loan
tranche to Ankara.

Simsek reiterated he thought the reforms would be passed in the next two
weeks.

"I am optimistic, I am hopeful, that it will clear the parliament over
the next week or two," he said. "I would give it an 80 percent chance
(of passage)."

Investors are also concerned by attempts to create extra-budgetary
funding for infrastructure and education projects, something Simsek
categorically denies is on his agenda, saying he blocked parliamentary
attempts to push such funding through.

"We will not have extra-budgetary funds. If we need additional funding
to finance human capital or infrastructure investments, we will do it in
a transparent way that will be through budgetary procedures," he said.

BORROWING AND GROWTH

Turkey has borrowed $2 billion out of an expected $5.5 billion from
international capital markets this year so far. Simsek said the country
could, if need be, go without external financing for two years if market
conditions did not improve.

"If lets say the markets remain closed, right now obviously not only for
us but for everybody, we can live. We can essentially survive not coming
to the market for two years very comfortably," he said.

"Why? It won't be a pleasant experience but we have a pipeline of
privatization receipts, most of which are hard currency, over $5
billion. These are for this year," he said, adding more privatizations
are to come.

But Turkey is vulnerable to the vagaries of the global financial system
due to its large current account deficit. It grew to roughly $38
billion, or 5.6 percent of GDP, last year.

Inflation risks from high food and energy prices and a drop off in the
growth rate, which averaged 7.4 percent over the past four years, are
raising questions.

Simsek countered that with the strength of the banking sector, citing
return on equity in 2007 of 24.9 percent; a capital adequacy ratio of
18.8 percent; and a non-performing loan ratio of 3.5 percent, of which
90 percent is fully provisioned.
Simsek, noting the troubles in the global economy and the fire sale of
No. 5 U.S. brokerage Bear Stearns after it faced what amounted to a run
on a bank, plus a serious legal challenge to his AK Party at home, said
the economy faced sub-trend economic growth.

"Yes, we will be affected to the extent of credit availability and
pricing of credit for the Turkish corporate sector changes. That may
mean sub-trend growth," he said.

"We think trend growth in Turkey, meaning potential growth, very
comfortably you could talk about 6 percent. So sub-trend growth, you
could say 4 or 5 (percent). Is it the end of the world? No. Not a big deal."
(Editing by Neil Fullick)