ISTANBUL - Turkey’s bonds are being propped up by the prospect of an International Monetary Fund bailout to close a $30 billion funding gap, even as talks appear deadlocked, according to RBC Capital Markets. Turkey and the IMF are divided over issues including "medium-term structural fiscal reform," the IMF said Jan. 26.
"The IMF talks have been playing a significant role in taming investor concerns," said Paul Biszko, a senior emerging-market strategist at RBC in Toronto. "I am not so sure the willingness to obey very strict conditions of a loan is there."
Turkey is headed for its first recession since 2001, with the economy forecast to contract 1.5 percent, according to the IMF. Unemployment climbed to a four-year high of 12.3 percent in the fourth quarter. The country is turning to the IMF for the fourth time in a decade as the worst global financial crisis since the Great Depression hampers the nation’s ability to cover external financing needs that central bank Governor Durmuş Yılmaz estimated at $30 billion this year.
According to Sabah newspaper, talks with the IMF are deadlocked over "three IMF demands Prime Minister Recep Tayyip Erdoğan has rejected." The Fund wants Turkey’s tax collection agency to have a status independent of direct control by the Finance Ministry, the newspaper said yesterday, citing an interview with Erdoğan. IMF demands for tighter tax inspection also contradict government plans to bring unreported income back into the official system, Sabah said.
The third demand is that the government cancel legislation that increases the share of funding local municipalities get.