Possible scenarios for the IMF funds secured by Turkey

In the past it appeared that the government was closer to signing a precautionary stand-by deal. However, of late, we have been hearing that they are closer to signing a regular stand-by agreement. I also think that a standard agreement is the most appropriate choice; in addition, a "pre-feeding" agreement should be signed. As far as we been able to learn, the agreement would be 18-months long, but the amount of funds obtained would be very important for the success of the agreement.

 

According to what we are hearing, the economic administration has calculated the funds needed for 2009 are as much as $30 billion. In other words, the agreement talks continue with this figure in mind.

 

What is more, it is also said that the amount of IMF funding is between $15-20 billion. Clarification of "how much of this fund would be pre-paid", in other words, how much cash funding will be obtained at the beginning of the IMF program and where it would be spent, is also needed.

 

Efforts to obtain a $10 billion "credit line" from a Gulf Fund, in addition to the IMF fund, are also being spoken behind the scenes. According to these rumors - the funds would be used by gradually if Turkey meets the pre-determined conditions.

 

In other words, it could be said that a regular stand-by deal would be signed with the IMF and the Gulf funds would act as the precautionary segment.

 

These are simply my thoughts and they have not been clarified yet. They are based on a notable change in the atmosphere last week when a minister told me "a precautionary stand-by was likely," when I asked him about the issue.

 

From what I understand, Economy Minister Mehmet Simsek, who had focused heavily on a precautionary stand-by, has shifted his focus to a more regular stand-by agreement. However he is said to be thinking that "an agreement would be signed, but it would be difficult to announce it in the near future."

 

I fail to understand why this process is taking so long; if an agreement was signed, the markets would not be experiencing this unnecessary heightened tension.Â

 

ECONOMCY PACKAGE COULD HAVE BEEN STOPPED BY IMF

The long-awaited economy package, together with an IMF agreement, is also being neglected. Turkey’s Prime Minister Tayyip Erdogan, who had earlier said that he would announce an economic stimulus package, later said, "Do you want a gift-wrapped package? We have already announced the measures, what can I do if you fail to see them?"

 

We understand from his remarks that he was attempting to crush the markets' expectation regarding an economic package. A first glance we see that "the refusal of the IMF to approve most of the government's measures in the package," could be the most likely reason for his attitude.

 

Earlier rumors suggested that the government was discussing a 15 percent cut in gas prices for industry, as well as value-added tax cuts in addition to excise tax cuts on some goods.

 

This translates into government efforts to reduce expectations of an economic package because of the IMF’s rejection of these revenue cutting measures.