IMF deal in the pipeline

An IMF delegation is expected to visit Ankara after the Feast of Sacrifice. The Treasury is also preparing to sell a new range of borrowing instruments, Şimşek says.

Only one day after Prime Minister Recep Tayyip Erdoğan bashed the International Monetary Fund, or IMF, for asking Turkey to increase taxes, State Minister Mehmet Şimşek has said the government wants an IMF loan accord "as soon as possible."

An IMF delegation is expected to visit Turkey soon, the Anatolia News Agency reported.

The government is "working to bridge differences over how to tighten 2009 spending plans," said Şimşek, speaking at a press conference in Ankara on Friday.

Talks with the fund have reached an "important stage" and there is agreement on the size of the changes Turkey needs to make to its spending plans, Bloomberg reported Şimşek as saying. Details on how the changes will be made are still being discussed, he said, declining to give any figure for the size of the adjustment.

Prime Minister Erdoğan said Thursday the IMF wanted a hike in the value added tax rate, adding they opposed any increase to the 18 percent rate.

"We expect a standby accord with funding of $20 billion," Yarkın Cebeci, an economist in Istanbul for JPMorgan Chase & Co., wrote in a note to investors.

Şimşek declined to put a figure on Turkey’s external financing needs for next year, saying only that estimates of $30 billion to $35 billion were too high. Turkey and the fund have been discussing a new accord since May, when a $10 billion loan arrangement expired.

The government is also reaching out for other sources of financing and will "soon" prepare a legislation that would allow the Treasury to sell a new range of borrowing instruments, Şimşek said. The new instruments will meet the "demands of investors in parts of the world where liquidity is high," he said. The government is considering the issue of its first Islamic bonds, daily Vatan reported Dec. 2.

Responding to a question, Şimşek said Turkish currency deposits in the banking system were increasing, thus "there is no problem in the banking sector."

"None of the banks have capital adequacy ratios below 12 percent," he said. "The profitability of banks is also high. In the first nine months of 2007, their profits totaled YTL 11.7 billion. As of the end of September, their profits in 2008 amount to YTL 11 billion. Their asset quality is also high, as bad credit only amounts to 0.6 percent of all credit."

Private sector’s foreign debts are also "manageable," he said, putting the figure at $81 billion as of the second quarter.

IMF coming to town
Economy bureaucrats will work with experts at the IMF Ankara Representative Office during the religious holiday. After the holiday, work will resume with the participation of an IMF delegation coming from Washington, reported the Anatolia News Agency on Friday.

The government opts for a "short term, regular stand-by deal," according to the agency. The term may be 18 to 24 months. If international markets improve, Ankara may switch to a precautionary stand-by in the second half of 2009.

The IMF had requested "harsh fiscal discipline" and a halt in public investments until November, but as the global financial crisis started affecting the industry, it has become "more flexible," reported the Anatolia News Agency.

The government forecasts economic growth of 4 percent for next year, more than double the 1.9 percent estimate from the Organization for Economic Cooperation and Development.

Kristin Lindow, senior vice president of Moody’s Investor Service Risk Unit, last week claimed Turkey risked a recession if a deal with the IMF was not signed.

Meanwhile, in Washington, the IMF's top spokeswoman Caroline Atkinson said Thursday that Turkey had so far not formally requested a stand-by program with the fund but that talks were continuing.

"The [Turkish] authorities... have not formally requested a program from the IMF. Discussions continue," she told reporters. "Maybe there will be a request at some point, but maybe not," Atkinson said.

Ümit Enginsoy from Washington contributed to this report.