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IMF to Resume Negotiations with Turkey, Agreement Unlikely

Posted on 02 October 2009

International Monetary Fund Chief Dominic Strauss Kahn said today that the IMF would restart negotiations with Turkey after the annual meeting in Istanbul. Some 15,000 delegates are descending on Istanbul for the annual meetings of the World Bank, the IMF, including finance ministers from the G7 nations.

Last week it was reported that Strauss-Kahn said Turkey didn’t need an IMF loan, and now he is quoted as saying that the Turkish economy is doing “rather well”.

Meanwhile Turkish Prime Minster stands firm in his determination to show the world that Turkey doesn’t need an IMF loan, as he and his cabinet continue to forge Turkey into one of the region’s most powerful players.

“Erdogan consistently said ‘no’ to the IMF, despite pressures from both the domestic and the overseas business community,” said Ahmet Akarli, an economist for Goldman Sachs Group Inc. in London. He likely saw dependency on IMF loans as incompatible with his “strategy of transforming Turkey into a leading global player and a heavyweight in its immediate region,” Akarli said.

Erdogan, 55, is seeking to promote Turkey as a growing economic power and also a regional dealmaker. He successfully mediated indirect peace talks between Syria and Israel, acted as a go- between in international talks with Iran over its nuclear program, and offered his country as a conduit to bring central Asian oil and gas to Europe.

The IMF and World Bank meetings are only held outside Washington once every three years, the fact that Turkey has hosted them twice (1955 was the first time) is a massive feather in the cap for Erdogan and his Justice and Development Party.

The IMF meetings “will take Turkey’s visibility to new levels,” Deputy Prime Minister Ali Babacan said Sept 30.

Turkish financial markets have so far backed Erdogan’s determination, posting gains even as Turkey refused IMF requests to reduce spending on local government and improve the country’s tax collection system.

Turkey’s benchmark ISE-100 stock index has added 80 percent in dollar terms this year, exceeding the 59 percent gain on the benchmark MSCI Emerging Markets index. Yields on the country’s benchmark bonds have fallen by almost half, to a record low of 8.53 percent.

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