Turkey nervous over US $8.5 bln loan conditions

ANKARA (Reuters) – Turkey’s government has promised the United States it would refrain from any unilateral military action in northern Iraq in return for $8.5 billion in loans for its frail economy, a US official said yesterday. The country’s powerful armed forces, which have long reserved the right to intervene in the Iraqi Kurdish enclave if Turkish national security is threatened, said they would feel deeply uneasy at any such undertaking. The NATO member already stations thousands of troops just inside northern Iraq in a controversial deployment it says is needed to stop hundreds of Turkish Kurdish separatist guerrillas returning to Turkey to launch attacks there. The presence of the Turkish troops has been a source of friction with Washington. US troops briefly detained 11 Turkish commandos in northern Iraq in July on suspicion they were involved in a plot to kill a senior Iraqi Kurdish official. The US official said the loan deal, signed last week, mirrored laws passed by the US Congress on April 16, which said US financing meant Turkey must cooperate in stabilizing Iraq and not intervene unilaterally in the country’s north. «The deal says basically what the (April 16) law says,» he said. «There is nothing new, hidden or secret in what the agreement says.» Turkish debt fell in price, bucking the general trend in emerging debt markets in London yesterday, as traders worried that a row might be breaking out in Turkey over the conditions for the US loan. Turkish debt has also traded at record high prices for two weeks making it more sensitive to bad news that could inspire profit-taking. «The thing that has changed this morning, compared to yesterday morning, is comments by the military expressing their displeasure or surprise that there are very specific limitations on Turkish action in northern Iraq in the US loan program,» said Jeff Gable, emerging market economist at Deutsche Bank in London. «It suggests perhaps disbursements under the program could be a bit further away than we had expected,» he said. Turkey’s benchmark 2030 dollar bond fell by one point to 113.875 percent of face value. The country’s segment of the industry benchmark, JPMorgan’s Emerging Market Bond Index plus rose in yield premium by four basis points to 543 basis points over US Treasuries.