| NEW YORK
NEW YORK Turkey's economy can withstand global
economic turmoil, Economy Minister Mehmet Simsek told Reuters,
to the point that a new IMF stand-by agreement is not needed
and is indeed "unlikely."
The International Monetary Fund's $10 billion loan
agreement with Turkey, which expires in May, has been an anchor
for Turkey's economy, helping it rebound strongly from a
financial crisis in 2001.
Investors, wary of Turkey's reliance on external financing,
have been clamoring for information on what direction Turkey
will take with the IMF when the current program expires given
the near seizing up of the global credit markets.
"I feel comfortable the public sector can carry on without
additional funding from the fund. So a stand-by arrangement is
unlikely," Simsek said in a late interview with Reuters on
Simsek was in the United States for speaking engagements
and meetings with investors. He will hold talks with IMF
Managing Director Dominique Strauss-Kahn in Washington on
"I do not believe that Turkey needs a stand-by agreement,"
he said. Instead it is considering either post-program
monitoring or the use of a precautionary stand-by agreement.
"No decision has been made. That decision will be made by
May," he said, noting that due to parliamentary delays there is
now a need to merge all outstanding reviews and try to complete
them before the IMF program expires.
A key IMF concern has been the Turkey's failure to pass a
long-delayed reform of its social security system.
Business groups have criticized the government for slow
progress on measures to stimulate a slowing economy and pushing
reforms such as social security, which is now sitting in
parliament for a vote.
Parliamentary approval of the reform, which will raise
retirement ages in Turkey, is a pre-condition for the IMF to
release a $1.3 billion loan tranche to Ankara.
Simsek reiterated he thought the reforms would be passed in
the next two weeks.
"I am optimistic, I am hopeful, that it will clear the
parliament over the next week or two," he said. "I would give
it an 80 percent chance (of passage)."
Investors are also concerned by attempts to create
extra-budgetary funding for infrastructure and education
projects, something Simsek categorically denies is on his
agenda, saying he blocked parliamentary attempts to push such
"We will not have extra-budgetary funds. If we need
additional funding to finance human capital or infrastructure
investments, we will do it in a transparent way that will be
through budgetary procedures," he said.
BORROWING AND GROWTH
Turkey has borrowed $2 billion out of an expected $5.5
billion from international capital markets this year so far.
Simsek said the country could, if need be, go without external
financing for two years if market conditions did not improve.
"If lets say the markets remain closed, right now obviously
not only for us but for everybody, we can live. We can
essentially survive not coming to the market for two years very
comfortably," he said.
"Why? It won't be a pleasant experience but we have a
pipeline of privatization receipts, most of which are hard
currency, over $5 billion. These are for this year," he said,
adding more privatizations are to come.
But Turkey is vulnerable to the vagaries of the global
financial system due to its large current account deficit. It
grew to roughly $38 billion, or 5.6 percent of GDP, last year.
Inflation risks from high food and energy prices and a drop
off in the growth rate, which averaged 7.4 percent over the
past four years, are raising questions.
Simsek countered that with the strength of the banking
sector, citing return on equity in 2007 of 24.9 percent; a
capital adequacy ratio of 18.8 percent; and a non-performing
loan ratio of 3.5 percent, of which 90 percent is fully
Simsek, noting the troubles in the global economy and the
fire sale of No. 5 U.S. brokerage Bear Stearns after it faced
what amounted to a run on a bank, plus a serious legal
challenge to his AK Party at home, said the economy faced
sub-trend economic growth.
"Yes, we will be affected to the extent of credit
availability and pricing of credit for the Turkish corporate
sector changes. That may mean sub-trend growth," he said.
"We think trend growth in Turkey, meaning potential growth,
very comfortably you could talk about 6 percent. So sub-trend
growth, you could say 4 or 5 (percent). Is it the end of the
world? No. Not a big deal."
(Editing by Neil Fullick)