Turkish assets fall as ruling party support slides, global markets down

The lira traded slightly below 1.70 levels against the dollar in afternoon trade, as the benchmark Istanbul Stock Exchange market fell nearly 2.5 percent. The yield on the bond maturing on Nov. 3, 2010 rose to 14.28 percent from Friday's close of 14.10 percent.

 

Support to the Turkish ruling Justice and Development Party, or AKP, which was expected to win a clear victory in the local elections on Sunday, fell by around 8 points compared to the 2007 general election.

 

Analysts say, although the fall in support for the AKP was an unexpected result, its affects on the markets would be limited since it will not make a major change in political conjecture.

 

The results however would likely lead to a government refocus on the IMF process and the finalizing of ongoing negotiations with the Fund, they also said.

 

"Since the economic crisis is seen as one of the most important reasons behind losses made by the AKP in the elections, the agreement with the IMF could be come agenda in the near term," ntvmsnbc.com quoted, HSBC analyst Fatih Keresteci, as saying.

 

The Turkish government had put off sealing a deal with the International Monetary Fund, or IMF, since May as the two sides failed to agree on changes to the tax system and spending cuts.

 

Turkey is facing its first recession since 2001 with unemployment at 13.6 percent, the highest level in at least four years, and industrial output slumping 21.3 percent, the most in at least 23 years. The Turkish government is likely to agree funding of between $20 billion and $25 billion with the IMF over two years, Bloomberg reported Ahmet Akarlı, an economist at Goldman Sachs, as saying.

 

Financing needs

 

Turkey needs assistance to cover an external financing requirement that Central Bank Governor Durmus Yilmaz estimated at $30 billion in 2009.

 

IMF funds may be used to finance some of the budget deficit as well as the current-account gap, Economy Minister Mehmet Simsek had said. The budget deficit leaped to 7.4 billion Turkish lira ($4.4 billion) in February as government spending soared ahead of the local elections, pushing the shortfall in the first two months to the government’s target for the entire year.

 

The lira tumbled some 28 percent in the past six months, reaching the lowest level on record against the dollar on March 9. The greenback however lost nearly 5 percent against the lira since March 9.

 

Fresh worries for Ford, Chrysler

 

Fresh worries about struggling U.S. carmakers General Motors and Chrysler after a task force said their plans for recovery are "not viable," and the deteriorating economic figures in Japan depreciated sentiment in the markets.

 

U.S. President Barack Obama's auto task force said early Monday that it had found recovery plans by the two automakers "not viable as currently structured," as the president prepared to announce his new plan on Monday. The companies have already received $17.4 billion in emergency loans approved in December to help them stay afloat.

 

Japanese shares closed down 4.53 percent on Monday as bad industrial and auto production data fed the gloomy economic outlook and traders rushed to lock in profits made last week.

 

Europe's main stock markets plunged in early trading following a massive decline in Tokyo, with falls of more than 3 percent in Paris and Frankfurt.