IMF decides on Turkey loan

Turkish officials are confident the loan will be released

By business reporter Mark Gregory

The International Monetary Fund is expected to agree to resume lending to Turkey at a meeting of its board on Thursday.

The IMF suspended payments on a $16bn emergency stabilisation package last week, amid concern about the pace of economic reform.

Turkish officials are confident that enough has been done to persuade the IMF to release a $1.6bn dollar tranche of loans due under the stabilisation programme.

That is expected to trigger a similar move by the World Bank, which also meets to discuss the issue on Thursday.

The bank would inject a further $1.7 bn to restore confidence in Turkey's crisis-ridden economy.

Banking reform

IMF lending was suspended because the fund believed the Turkish government had failed to deliver on promised banking reform.

The delay over funds has seen shares slump

It had also failed to provide a credible management to supervise privatisation of the state telephone network.

In response to IMF pressure, the government took control of five more insolvent banks this week.

It also appointed two new directors with private sector experience to the board of Turk Telekom.

The IMF's speedy reaction to these moves - and the fact that it has publicly stated it will be discussing the issue - has been taken a a sign that the fund will resume lending.

Wider crisis

But the crisis is far from over. In Wednesday's trading, Istanbul share prices slumped almost 8% in value.

Part of that slide was due to concern at events in Argentina - another important emerging economy in crisis.

In the latest move there, Argentina has promised budget cuts to stave off the danger of default on government debt.

Simultaneous panics in Turkey and Latin America have destabilised world financial markets.

A major international rating agency has just downgraded its assessment of Turkey's credit worthiness from stable to negative.