Turkish debt sale sparks IMF optimism

Turkey's economic gloom remains despite IMF loans

Turkey's plans for financial reform have been boosted by a successful sale of government debt at rates much cheaper than observers had expected.

The sale has raised hopes that the International Monetary Fund will release fresh funds to help the Turkish economy, which has been in crisis in the last few months.

The value of the Turkish currency, the lira, has plunged on international markets, while the IMF has insisted that the Turkish government complete controversial plans to privatise its banking and transport sectors.

The government's sale of its debt - at a lower interest rate than expected - has been taken as a sign of market approval for Turkey's reforms ahead of the visit on 30 July to Ankara of IMF Deputy Director Stanley Fischer.

Breathing space

He is expected to use the visit to make a public display of solidarity, and suggest that the disagreements over the IMF's deal with Turkey are over.

The positive mood triggered by the auction saw the lira strengthen and the Turkish stock market end the day higher, as dealers gave the government a breathing space to implement economic reforms.

IMF's Fischer: in Turkey to offer support

Comments from US Treasury Secretary Paul O'Neill in London also reinforced sentiment, as he cast doubt on investors' concerns about "contagion" of problems spreading from one emerging market, like Argentina, to others.

"With a magnifying glass, you couldn't find a connection between Turkey and Argentina, except in people's minds," he said.

Turkey's economy is labouring under sky-high inflation, and corporate bankruptcies and compulsory redundancies are rife. Government debt has almost tripled in the first six months of this year to 92,000 trillion lira.

Suspension

In June, the IMF suspended its $15bn loan programme following allegations of foot-dragging on agreed reforms.

The programme was restarted with the release of $3.2bn in IMF and World Bank loans on 12 July after one of the main opponents in the government of the IMF plan was sacked.

The communications minister, Enis Oksuz, had refused to accept privatisation of state telecoms company Turk Telecom on national security grounds, and had become a symbol of nationalist scepticism about the IMF agreement as a whole.