Election outcome will determine Turkey’s IMF pact implementation

ISTANBUL (Reuters) – Turkey is implementing its $16-billion IMF pact well, but the outcome of looming November polls may determine if the crisis-hit country will need extra funding in 2003, a senior IMF official said yesterday. Investors worry the election may bring a weak coalition government to power or one led by a conservative party suspected for its Islamist roots. Such an outcome will do little to convince markets Turkey can juggle a massive domestic debt load sparked by a February 2001 crisis. «The financing need going forward will depend on the approach of the new government. I think a commitment to continue economic reforms will help market confidence and reduce the need for financing from international financial institutions,» the IMF’s representative to Turkey Odd Per Brekk told Reuters. Turkey should top a 3-percent growth target for 2002 after a 9.4-percent gross national product (GNP) contraction in 2001, Brekk said. «Our understanding is that all major parties have said that they intend to follow the general strategy of the current program,» he said. While welcoming the current government’s commitment to speeding up economic reform, Brekk said more action was needed to accelerate Turkey’s privatization program. The International Monetary Fund will begin its fourth review of Turkey’s economic reform program next week, when a delegation from Turkey arrives in Washington to attend annual IMF meetings, Brekk said. Turkey’s lira, share and debt markets all rose fractionally yesterday in a cautious reaction to signs that moves to upset planned November 3 elections are running out of steam. Investors worry that parties fearful of not crossing the 10-percent threshold needed to enter Parliament might try to delay the polls, threatening stability and the implementation of the IMF pact, which is essential to rolling over a massive debt load. The main share index rose 0.36 percent to 9,257.54 points, building on 1.44 percent gains on Tuesday. Traded volume was also busier, at 196.57 trillion lira (some $118 million), still thin but 26 percent up from Tuesday in a sign of a tentative return of confidence. The prospect of possible US-led military action against neighboring Iraq as well as Byzantine pre-election intrigue in the capital Ankara have deterred investors from Turkish markets for weeks and weakened investors’ appetite for treasury debt auctions. «The market is influenced by politics. There is buying but it’s weak and not enough to pull the market out of the squeeze it’s in,» said Muhtesem Karbas of Anadolu Yatirim. Average yields on the busiest May 7, 2003 domestic debt paper stood at 71.70 percent compared to 71.99 percent on Tuesday but debt traders said lingering uncertainties would prevent a major fall in interest rates. Additionally, a net repayment to the market of around 500 trillion lira yesterday did not spark buying in bonds, as it often does, traders said. «The redemption’s going calmly. But there hasn’t been volume like with other redemptions,» said one banker. The treasury sold below its target of 3-month bills on Monday and struggled to sell floating rate notes on Tuesday. Ivanov believes that «Russia and the USA must develop cooperation in energy projects when they look economically expedient.»