Turkey, IMF agreement on 3-yr loan deal principles, talks continue - min

In a telephone interview with the Wall Street Journal, Simsek said Turkey was looking for the IMF to be "flexible" in negotiations, which focus on the level of spending cuts and the revamping of the tax system. However, Simsek declined to disclose the size of the loan Turkey is seeking.

At the G-20 summit in London on April 2, "we gave the IMF more resources and told the IMF it needs to be equipped with a more flexible tool kit," Simsek said. "We're hoping that the IMF will be more reasonable, taking into account the extraordinary circumstances Turkey is facing."

Simsek said Turkey still had hard bargaining ahead that would likely not conclude before the end of the month. "An agreement hasn't been sealed," he added.

Turkish media had also earlier reported that the government had reached a deal in principle with IMF, citing Simsek. The reports said that the deal would cover all of Turkey's foreign financing needs and predicted different estimations of its amount, ranging from $25 - $45billion.

An IMF spokeswoman also confirmed the IMF-Turkish discussions and said that negotiating teams would meet soon either in Ankara or Washington.

During negotiations in January, he said, Turkey had agreed to reduce its fiscal deficit by between 0.7 percent and 0.8 percent of Gross Domestic Product, or GDP. The talks had been suspended until after the local elections on March 29, and resumed again during the G-20 meeting.

Since January, Turkish government revenues have plunged. Simsek said that the IMF was pressing Turkey to restructure the tax auditing and tax collection systems. Turkish taxes depend too much on sales taxes and other consumption taxes and not enough on personal and corporate income taxes, Simsek said.

Simsek noted that the United States, China and Western European countries have been trying to "spend their way" out of the downturn through fiscal stimulus and deficit spending, but said that this option was not available for Turkey. He said the country, with around $68 billion in foreign reserves, is unable to finance such a strategy.

"We cannot just increase our budget deficit; that would increase external financing needs," he said.

Simsek said that Turkish companies were suffering from a sharp reduction in foreign capital flows. "Pessimism is contagious. Turkish banks with good fundamentals won't lend and households with low leverage won't spend."

An IMF loan "would help ease concerns about external financing," he added.