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Turkey and the IMF: deal or no deal?

Turkey and the IMF appear to be inextricably linked in 2009. In October, the world’s bankers – or what is left of them – will descend on Istanbul for the annual World Bank/IMF meetings.

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In mid-February, the hottest topic of conversation among Turkish investment bankers centred on the long-running saga of Turkey’s negotiations over a new standby agreement with the IMF. For many bankers the successful negotiation of a new arrangement will play a key role in determining Turkey’s economic fate in 2009. Mehmut Besimoglu, chief economist at Oyak Securities, says that uncertainty over the scale and scope of any IMF deal is acting as a brake on domestic and international investor sentiment towards Turkey. "The government has been pretty lacklustre about securing an agreement with the IMF," he says. "Without an IMF agreement we could see a loss of investor confidence in Turkey – and once you lose investor confidence it’s very difficult to regain it." In particular he says that the absence of an IMF agreement could put added pressure on the Turkish lira, which in the past six months has already fallen more than 25% against its 50/50 dollar/euro trading basket. "Currency devaluation is the major threat to the Turkish economy," says Besimoglu, adding that the sooner that Turkey signs a new contract with the IMF the better.

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