Istanbul: Turkey Wednesday confirmed that it was no longer holding talks with the IMF about a stand-by loan and said it did not need emergency funds, but left the door open for a possible agreement in future.
An IMF spokeswoman in Washington said late on Tuesday that talks on a stand-by loan had been called off, ending months of speculation in financial markets. The Washington-based organisation said a mission would travel to Turkey in the first half of May for annual consultations on the economy.
"There will be no talks regarding the programme until May," Turkish Economy Minister Ali Babacan told a conference yesterday in Istanbul. "Our meetings, our efforts will solely focus on the meeting in May with the evaluation committee from the IMF."
Babacan said the government would stick to its medium economic programme, which was announced last September and is aimed at reducing a budget deficit and boosting fiscal discipline. But the minister said obtaining a stand-by loan accord was always an option for any IMF member state.
Prime Minister Tayyip Erdogan was due to speak later in Istanbul.
Istanbul's stock market fell more than 1 per cent on opening after news the talks were off but recovered and was flat by late morning.
Bond yields rose with the yield on the benchmark November 16 bond rising to 9.27 per cent from a Tuesday close of 9.17 per cent. The lira traded flat.
Ankara had been holding stop-start negotiations with the IMF ever since its last stand-by deal expired in May 2008, but as it weathered the crisis Ankara began to suggest it didn't need the money, although markets remained hopeful of a deal.
The absence of a stand-by loan will put added focus on government spending and a fiscal deficit, which both ballooned in 2009, as Turkey heads into an election year in 2011.
"Turkey will no longer be able to use the 'IMF weapon" as insurance in case things go sour; thus it will be more vulnerable to ‘event risk'," Tera Securities said in a research note.
"Fiscal policies are now more important than ever since the medium-term economic programme is the only anchor Turkey now has," it added.
Although analysts expect the Turkish economy contracted 6 per cent in 2009 the country showed resilience through the financial crisis, tapping international credit markets at record low yields and attracting strong appetite for its bonds.
All three major credit ratings agencies have upgraded Turkey's sovereign rating in recent months, noting its ability to weather crises, and the economy is expected to grow 3.5 per cent this year.
Turkish assets, however, were hit in recent weeks by a renewed bout of political tension after a wave of arrests of high-ranking military officers in connection with an alleged coup plot in 2003. Erdogan's Islamist-rooted government is also risking confrontation by threatening to reform the judiciary, which along with the military remains a bastion for conservative, nationalist secularist forces.