Turkey: Local Markets Remain Weak Despite Expected Release of Imf Funds; Try Losses Seem Unlikely to Be Reversed, Perhaps Adding to Inflation, and Growth May Slow

Summary

---

The IMF is to release two credit tranches totalling USD1.9bn subject to spending cuts and the re-adoption of key social security legislation. Announcing the results of the latest IMF review, treasury minister Ali Babacan suggested that the economy would shrug off the recent financial market volatility. He expects strong capital inflows to continue, national income growth to surpass the target and inflation to remain within the limits set by the central bank. But local financial markets remain tense on account of a number of external and internal economic and political factors. And in the event of weaker capital flows, the TRY is unlikely to recover, which in turn may add to inflationary pressure while dampening private demand. More accurate forecasts will be possible as market movements settle and further data becomes available.

See the full content of this document

Extract

---

Turkey: Local Markets Remain Weak Despite Expected Release of Imf Funds; Try Losses Seem Unlikely to Be Reversed, Perhaps Adding to Inflation, and Growth May Slow

IMF review gives Turkey conditional green light, but fails to reverse market sell-off

The IMF delegation has wound up its latest review of economic policy under last year's USD9.5bn three-year standby accord. Treasury minister Ali Babacan and IMF Turkey desk chief Lorenzo Georgianni announced at a press conference on 22 May that a letter of intent had been drafted for submission to the IMF executive board in July containing a number of pledges, especially on the fiscal front where the Fund delegation had found signs of slippage. In return, the IM will release two tranches of credit totalling USD1.9bn, effectively reducing Turkey's ongoing net redemptions of IMF debt.

This cautiously positive announcement came at a time...

See the full content of this document

---