 urkey's
financial markets have been buoyed by the prospect that more international
financial support will be made available in the coming days. Turkey's
growing military role has put it at the front of the international
financing queue, and the expected 2002 financing gap of $15 billion
looks increasingly likely to be plugged by official sources.
Comments from the International Monetary Fund in recent weeks show
a decided sympathy for Turkey due to the tough impact the September
11 attack had on the country. In late October, IMF head Horst Koehler
said that Turkey's economic program "has been on track"
and an IMF team would go to Turkey "to work with the authorities
to strengthen economic policies." The austerity imposed by
the IMF program has helped put the Turkish economy into the rough
shape its in, but the markets are responding to the hope for a quick
injection of funding.
In contrast with Argentina, there appears to be support for bilateral
aid for Turkey. In late October, Belgian Finance Minister Didier
Reynders was reported to have said that international lenders are
discussing up to $13 billion of aid for Turkey, including bilateral
financing. The markets have been focused on the possibility that
Turkey could receive a relatively large package, including an accelerated
disbursement of $3.1 billion from the existing IMF program, $5.5
billion in "rollovers" from the Fund, $7 billion in bilateral
financing from the G-7 nations, and additional multilateral monies.
In an interview published on November 2, Turkish Economy Minister
Kemal Dervis said that he expects the negotiations with the IMF
to be finished by mid-month. The markets have rallied as a result:
· Since October 19, the lira has rallied by 6% to 1.556
million liras per dollar
· Since October 8, the stock market has rallied by 38%
in dollar terms
· Since October 8, the yield on Turkey's 2010 Global Bond
has fallen to 13.6% from
15.2%
Turkey's key role as a Muslim NATO member has allowed it to marshal
support to help stave off insolvency in 2002. The markets are correctly
rallying as that immediate risk has
diminished. But the economic data remain soft. Data released on
November 3 showed WPI inflation for October of 6.7% on a month-to-month
basis. This was worse than the 5.2% that had been expected. On a
year-to-year basis, WPI inflation reached 81%, up from 74% in September.
This poor inflation outcome drove yields up by 1.5%, with the six-month
T-bill reaching 82%.
Higher interest rates will keep pressure on the government on into
2002. The Treasury has an especially heavy borrowing need through
year-end, with $5.5 billion of domestic debt coming due in November
and another $4.4 billion in December. The need is especially acute
right now, as some $2.2 billion falls due this week. This explains
why the government is so intent on receiving its IMF funding as
quickly as possible.
Turkey's markets have been lifted by what looks to be another international
bailout, but we are concerned that the economics underlying the
story are worsening. Inflation is starting to pick up. The recession
remains steep, with no growth yet in sight. Domestic debt rollovers
remain high on into 2002. While the G-7 and IMF are taking steps
to shore up Turkey's international debt position, the seeds of a
domestic debt workout — or a hyperinflation to do the same
— are being put down.
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