Turkey's mounting financial woes are piling huge pressure on the Turkish pound, raising the risk of devaluation unless the IMF rides to the rescue, emerging market specialists said here on Thursday, November 30.
But they added that even a worse-case scenario would be unlikely to trigger a full-scale rout of emerging market economies, as did the Russian and Brazilian crises of 1998-99.
"What is needed to stabilize confidence is additional IMF lending," said Eric Fine, an emerging markets expert with Morgan Stanley. "Local investors would be happy with $5 billion, foreigners would need to see $10 billion" to stop pulling out of the market en masse.
"The next 24 hours are crucial," he added. "The concern surrounds the foreign exchange mechanism."
These comments were made shortly after the Turkish government had insisted it would stand by its anti-inflation program and the Turkish Anatolia agency reported that the World Bank had expressed support for Turkey while warning that the country faced a "serious threat".
Turkey's stock and foreign exchange market have been rattled by a mass exodus of capital, as investors fret about a classic financial crisis scenario, complete with a banking liquidity crunch, soaring short-term interest rates and a government struggling to finance the deficit.
Estimates put the amount of money fleeing the country at between $500 million and one billion dollars a day, heaping huge pressure on the central bank to meet demand with its hard currency reserves.
"The way out is to restore confidence," said HSBC emerging markets analyst Paul Kinghorn. "They could do that with IMF cash, because the reserves are going down a billion a day. At the same time they need to show commitment to economic reforms and privatization.
"There really is the risk that they have to let the currency go," he added. "Then we would be back where we were a year ago."
Comparisons have inevitably been drawn with the recent financial troubles in Argentina and the 1998 debt and default debacle in Russia, but most analysts agree that even if a full-blown crisis emerges in Turkey, it would be more containable.
Dealers said the market for debt instruments in emerging economies had as yet resisted the jitters, though Russia's stock market on Thursday fell sharply in sympathy with Turkey.
"The comparison with Russia (in 1998) has been made, but actually it's very very different," said ING Barings analyst Charles Robertson. "Turkey is much smaller, the contagion effect is less. The IMF has already been very supportive."
He also noted that unlike some of its more troubled emerging market counterparts, Turkey still boasts strong export growth despite the strong Turkish pound, and remains a booming economy with annual growth of around six percent.
"We are not seeing that much contagion from Turkey," said Kinghorn. "We saw more from Argentina. Argentina is a much more substantial emerging market component than Turkey.
"If Turkey did have to devalue, the contagion wouldn't be nearly as big. Nobody wants it to happen, but it wouldn't be the end of the world."— (AFP)
© Agence France Presse 2000
© 2000 Mena Report (www.menareport.com)