Emerging markets intensify efforts amid global crisis, eyes on Turkey

Economists, however, warn Turkey fell behind its emerging market peers in lessening the effects of the global crisis. A new IMF deal with financial aid and possible central bank measures against volatility in the foreign exchange market are top of the list.

 

According to the calculations made by analysts on the bourses of emerging markets, around $1.5 trillion in value has been wiped off emerging market stocks since the beginning of the year.  Â

 

Turkey is among countries hit hard and the worsening conditions of its peers with a similar macroeconomic structure, such as Hungary and South Africa, have raised concerns.

 

As of Wednesday, the Hungarian forint fell by 20.5 percent, the South African rand by 25.6 percent, and the Turkish lira by 21.6 percent against the U.S. dollar since the beginning of October.

 

MARKETS AWAIT STEPS

The Turkish lira has depreciated by more than 40 percent against the dollar and 18 percent against the euro since early August in a more aggressive and sharper currency correction than in May-June 2006.

 

It is time for the Turkish Central Bank to take out some other actions from its toolbox, which could increase foreign exchange liquidity in the market and ease the pressure on the currency, said Ozgur Altug, the chief economist of Raymond James.

 

"These other options are: 1- To start daily foreign currency selling auctions to provide foreign exchange liquidity in the foreign exchange depot market, 2- To intervene directly in the foreign exchange market, 3- To tighten Turkish lira liquidity, 4- To increase interest rates," he said in a research note on Wednesday.

 

The Turkish Central Bank would hold its monthly meeting on interest rates on Wednesday and is not expected to change the rates which currently stand at 16.75 percent.

 

The central bank so far took some steps re-launching the foreign exchange depot market for banks to borrow from each other through the central bank and suspending daily dollar buying auctions.

 

CALLS FOR AN IMF DEAL

The Turkish government has been reluctant in taking concrete measures or revealing multi-billion dollar rescue packages as it tries to avoid an increase in the perception of an economic crisis in the country ahead of the local elections in March 2009.

 

Analysts and economists warn that the government maybe too late to take the necessary steps, and that the required measures become more profound and comprehensive as time passes and the conditions in the global economy worsen.

 

The government has so far announced only one measure; the plan to implement incentives to attract the funds Turkish citizens hold abroad - a move that market players have long requested.

 

But for now this measure is seen as far from successful as Turkey has become a risky place for all investors, Ulrich Leuchtmannn, Commerzbank economist, said in a note.

 

The urgent step awaited from the government is a clarification on the future form of relations with the IMF after the final loan agreement expired in May.

 

"A new standby agreement would certainly help the lira in these circumstances. But the government might be more focused on the coming elections and might not be in a mood to give a large part of their fiscal authority away. The chance of a quick agreement with the IMF therefore seems to be only small," Leuchtmannn added.

 

Although the government rules out the addition of financial aid in any new deal with the IMF, business leaders raised their voices saying that existing market conditions increased the need of a financial package.

 

Still the fear that the government missed the train exists and even moves to cut rates, attracting expat funds and a new IMF deal, would not be sufficient to cushion the impact of the global economic crisis.

 

GOVERNMENTS STEP IN

Volatility in the foreign exchange markets and signs that the crisis has started to have negative impacts on the real economy has pressured the governments of emerging countries' around the world.

 

Rumors have been circulated in the markets that some emerging markets, such as Pakistan, South Korea and Argentina, may default.

 

Iceland, facing the risk of "national bankruptcy", is set to seal a 6 billion-dollar rescue package with the IMF, its Nordic neighbors, Britain as well as Russia.

 

Hungary, the hardest hit Eastern European economy due to existing turmoil, received 5 billion euros from the European Central Bank to fund its bail out efforts and is seeking consultations with the IMF. The Hungarian Central Bank increased interest rates by 300 basis points on Wednesday in an extraordinary meeting.

 

Ukraine also turned to the IMF for a 15-billion-dollar loan agreement, while Russia has announced a 200-billion-dollar financial plan for national economic bail out including a 50-billion-dollar aid package to finance the external debts of the oligarchs.

 

In Asia, South Korea announced a 130-billion-dollar rescue plan and unveiled a package to help its ailing construction industry. Asian countries also mull forming a pool of $150 billion to be tapped in the case they need to protect their currencies and another $200 billion would be set aside to buy equities, bonds and fund infrastructure projects.