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    Investors jumpy over Turkey's IMF deal decision delay

    by Emek Kaplangil
    14.05.2008 - 11:03 | Son Güncelleme:

    Turkey’s failure to decide on the new form of relations with the IMF concerns investors who had seen this agreement as one of the two important anchors for the Turkish economy.

    Analysts and economists say a delay in replacing the expired IMF stand-by agreement is a cause of concern given the fact that the economy is slowing and a global environment is deteriorating.  

    "In order to maintain investor confidence and to show commitment to fiscal discipline, the government should decide and replace the expired IMF stand-by programme," Finansbank economist Inan Demir said in a telephone interview with Hurriyet English on late Tuesday.  

    The global conjuncture is not as optimistic as it was in 2002-07, which helped the government to maintain its steady growth and obtain its primary surplus targets, said Demir. This is why the government must be more careful to provide an anchor for investors and approve a precautionary stand-by arrangement, he added.

    Turkey witnessed strong economic development and strengthened its economic outlook with assistance from IMF programmes implemented after a severe economic crisis in 2001. The country's steady economic growth averaged 7.4 percent a year from 2002 to 2006 under the IMF programme.

    However risks on the outlook of Turkish economy still persist. Turkey’s current account deficit hit a record $40 billion, the government decided to cut its primary surplus target, a key gauge of fiscal discipline, for 2008 to 3.5 percent from 4.2 percent, and spending is expected to increase ahead of the local elections in 2009. In addition, the possible effects of a global credit crunch and surging food and energy prices are seen as the other factors that make the outlook gloomy.

    The Turkish government is under pressure from investors to speed up structural reforms and take precautionary measures to keep the economy on track.

    "Given the growing domestic and external challenges that Turkey is facing, it is disappointing to note that the government has still not decided on the new format of its relations with the IMF," Wolfango Piccoli, an analyst at Eurasia Group, a political risk consultancy was quoted as saying by the Financial Times on Tuesday. 
     
    As the IMF's three-year programme wrapped up, weakening economic growth in developed countries and rising world fuel and food prices threatened to dampen demand for Turkish products abroad and push inflation higher. Tighter global credit conditions are also problematic for Turkey which relies heavily on external financing to fund its huge current account deficit.

    The IMF had said Turkey considers two options; one of them may involve a so-called non-disbursing loan programme, or a period of enhanced economic surveillance that includes twice-yearly IMF assessments. The fund also urged Turkey to make a speedy decision on the issue.

    Turkey is expected to sign a “precautionary stand-by arrangement” -- though it has not officially been announced. This arrangement allows a fair degree of IMF oversight of fiscal policy but it provides financing only in emergencies, unlike the expired agreement, where the $10 billion was guaranteed.

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