Reuters: Crisis in Turkiye continues

Turkey in key IMF talks, market turmoil continues
By Hatice Aydogdu

  
ANKARA, Dec 4 (Reuters) - Turkey held emergency talks with the International 
Monetary Fund on Monday on measures to rescue its economy as stocks plunged 
and interest rates stayed sky high. 

In a day of continued high tension at home in a crisis sparked by problems in 
Turkey's banking system, events took a more favourable turn in the country's 
often stormy efforts to forge closer ties with the European Union. 

EU foreign ministers announced compromise wording on an EU membership roadmap 
for Turkey, apparently avoiding a Greek veto. 

In Ankara, an International Monetary Fund (IMF) team began talks on a loan, 
possibly $4-5 billion, to ease a dramatic liquidity squeeze now threatening 
to demolish Turkey's anti-inflation programme. Stocks, which had already 
fallen nearly 40 percent in two weeks, ended Monday eight percent down. 

Average overnight interbank rates, a good measure of the general climate in 
money markets, reached 782.46 percent, down from 863.99 on Friday. But there 
was no clear indication the upward trend of the last two weeks had been 
broken. 

Time is clearly limited to solve the immediate financial crisis. The IMF, 
while promising fast track approval of a loan, will demand acceleration of 
painful fiscal and banking reforms at the talks, held under an information 
blackout. 

One fear haunts markets above all others. 

If the two sides fail to agree a Supplementary Reserve Facility (SRF), a 
short-term loan at higher interest rates, or talks drag on, Turkey could be 
forced to abandon a crawling peg currency and devalue. This would destroy the 
IMF programme. 

"I'm confident the peg will hold because the consequences of allowing the peg 
to go, both in domestic and international terms, are just too high," John 
Lomax of HSBC said. 

"We're expecting the IMF to come up with an SRF within around three days and 
as a consequence of that we expect the current savage liquidity crisis to 
kick sharply into reverse and then interest rates will come down very 
quickly." 

"TEMPORARY FLUCTUATIONS" 

Treasury bonds to the value of $735 million were issued on Monday to a 
banking watchdog to help straighten the books of 10 banks it has in 
receivership, several of which are under criminal investigation. 

An explosion of rates in the last two weeks results from a virtual standstill 
in the banking system where many banks, wary of risks, are simply refusing to 
deal with each other. 

The state of Turkey's banking system, 81 banks in all, is the focus of the 
crisis and of the IMF team's concern. 

Turkey's Treasury, which in a statement on Monday played down the crisis as 
"temporary market fluctuations," said the IMF team would be in Ankara for 
around 10 days. Traders said markets are likely to have to wait some time for 
solid news. 

"People are talking about around $5 billion in immediate loans but this deal 
is not going to be easy because the IMF has the power right now," said Burak 
Akbulut of Bayindir Securities. 

"And to give this loan the IMF will ask the Turkish government to speed up 
reforms," he said. "In basic words that means privatisation, social security 
reforms, state bank sales and banking reform." 

Many economists have said speed is of the essence as every day the liquidity 
crisis continues the central bank is spending more of its reserves to fund 
the market and rates remain high. 

The central bank governor said over the weekend he had $18.8 billion to use, 
down from $21.583 billion on November 24 and $24.433 billion before the 
crisis set in. 

Akbulut said the market had some way to go before it would see the IMF money. 
"Even if Turkey can receive fresh cash from the IMF, we should count 
ourselves lucky if Turkey gets the money before year end," he said. 

NO PANIC ON THE STREETS 

So far, there has been no sign of any spread of the panic recently seen on 
markets to the street. Banks report no unusual run on cash. But protest 
strikes last week assumed a distinctly anti-IMF flavour. 

Any delay in the loan carries with it the increased danger of resentment 
against the West. Some rightwing commentators have already suggested a link 
between the onset of the crisis and frictions between the EU and Turkey over 
Cyprus. 

But the EU delivered some relief on Monday when foreign ministers, setting 
out reforms Turkey must make to qualify for membership talks, forged a 
compromise wording that appeared to avoid any rebuff to Ankara. 

Greece had said it would press demands that progress towards reunification of 
Cyprus and solution of Greek-Turkish Aegean territorial disputes be included 
in a list of short- and medium-term demands. Turkey had labelled this 
unacceptable. 

"We have an agreement on the accession partnership with Turkey," French 
Foreign Minister Hubert Vedrine told reporters in Brussels. "It's important 
for the EU and it's important for Turkey." He gave no details of the 
agreement. 

But NTV television, quoting the document, said it included references to 
Cyprus and the Aegean not under specific time- linked goals, but in a 
separate section entitled "extended political dialogue and political 
criteria." 


***********************

IMF rides to Turkey's aid, rates still sky high
By Claudia Parsons

  
ANKARA, Dec 4 (Reuters) - Turkey held urgent talks with a special IMF team on 
Monday about emergency loans to tackle a major financial crisis, but local 
shares continued to plummet and interest rates were sky high. 

Yields at the Central Bank's seven-day repo auction were equal to a massive 
19,500 percent a year, indicating commercial banks were desperate for lira, 
while average overnight interbank rates were over 1,300 percent during the 
morning. 

The stock market lost eight percent in the morning session as International 
Monetary Fund economists started meetings with Turkish treasury and banking 
officials in Ankara. 

IMF Managing Director Horst Koehler said on Sunday he hoped to reach 
agreement as quickly as possible on measures to strengthen Turkey's economy, 
particularly the banking sector. 

He said he hoped the IMF could quickly move forward with a loan to help calm 
a crisis triggered two weeks ago by fears about a criminal probe into some of 
10 banks in receivership. 

But Turkey's Treasury said the IMF team would be in Ankara for around 10 days 
and traders said markets will probably have to wait some time for solid news. 

"People are talking about around $5 billion in immediate loans but this deal 
is not going to be easy because the IMF has the power right now," said Burak 
Akbulut of Bayindir Securities. 

"And to give this loan the IMF will ask the Turkish government to speed up 
reforms," he said. "In basic words that means privatisation, social security 
reforms, state bank sales and banking reform." 

The stock market has already fallen nearly 40 percent in two weeks and key 
interest rates soared to more than 1,000 percent last week as the probe 
raised fears of a banking system crisis. 

The IMF has vowed to put Turkey on a fast-track for emergency loans worth an 
estimated $4 billion by analysts. 

Koehler said he would be prepared to recommend that the IMF's decision-making 
board approve a Supplementary Reserve Facility (SRF) -- a short term loan at 
higher interest rates -- to help Turkey shore up its reserves which have been 
battered by a rush to the dollar. 

Reserves dipped $2.85 billion to $21.583 billion as of November 24, three 
days after the central bank began emergency funding to handle the cash 
crunch. December 1 reserves data due on Thursday will reflect the cost of the 
funding more fully. 

Koehler said he hoped the IMF could make a decision on a loan package at its 
scheduled board meeting on December 21. 

The talks were not open to the media but Turkish Treasury officials said they 
might make a statement later on Monday. 

SPEED OF THE ESSENCE 

Many economists have said speed is of the essence as every day the liquidity 
crisis continues the central bank is spending more of its reserves to fund 
the market and rates remain high. 

"Statements aren't enough any more. The market is expecting concrete action 
from the IMF," said Mursel Yildiz of Vakifbank Securities. 

However John Lomax, emerging market economist at HSBC in London, said that 
although the technicalities of putting the deal in place might take a while, 
he expected a clear indication of the amount involved within three or four 
days. 

"We're expecting the IMF to come up with an SRF within around three days and 
as a consequence of that we expect the current savage liquidity crisis to 
kick sharply into reverse and then interest rates will come down very 
quickly," Lomax said. 

Central Bank Governor Gazi Ercel said in a newspaper interview on Sunday that 
Turkey now had $18.8 billion in reserves to deal with what he termed "a 
speculative attack" on the country, and said he expected the crisis to end 
soon. 

Bankers say they have bought over $6 billion from the central bank in the 
last two weeks, as confidence within the sector has all but collapsed, 
leaving the central bank the lender of last resort for a small number of 
banks deemed risky. 

Observers say foreign investors wary of a widening financial crisis and 
domestic banks looking to close year-end positions in any case have also 
exacerbated the rush to dolllars. 

Treasury Under Secretary Selcuk Demiralp said the central bank had done 
everything possible to ease the liquidity crisis, but was bound by strict 
criteria under an existing $4 billion IMF-backed disinflation plan. 

On Thursday, the central bank ended emergency funding auctions which had 
violated the terms of the IMF plan. That triggered a sharp rise in interest 
rates, but economists said it was a signal Turkey must have secured 
commitments from the IMF. 

Burak Akbulut of Bayindir Securities said the central bank should continue 
the strategy of not funding the market even if the short term consequences 
were difficult to stomach. 

"Under the current overnight rates we might see some banks pushed out of the 
system. If that happens markets may give a sharp reaction on the downside but 
the market needs it and it's going to be a good thing," Akbulut said. 

IMF Turkey desk head Carlo Cottarelli arrived in Ankara with a team of 
experts on Sunday afternoon, while a second team was led by the IMF's 
European department director Michael Deppler. 

One team will deal specifically with banking problems. The second will offer 
more general economic advice.