Turkey's financial authorites are to ask the IMF and World Bank to bring forward loans because of a cash crunch that has shaken the stock market, a banking source said Wednesday, November 29.
The Turkish central bank, the treasury and banking supervisors had decided to ask for an early disbursement of existing credit lines with the International Monetary Fund and World Bank, the source said.
The central bank injected a further $2.7 billion into the money market on Wednesday, the Anatolia news agency reported.
That brought the central bank's total injection of funds to $6.9 billion since November 21, a bank source said.
A Turkish bank official said that the decision to ask for the early disbursement of IMF and World Bank loans was made at an emergency meeting on Tuesday evening at Istanbul.
The meeting brought together the central bank, the treasury, the council of bank supervision and 19 big credit institutions.
Analysts said the cash shortage had sprung from the Turkish authorities' anti-inflation program, which relied on depreciating the currency but which had led to a widening current account deficit.
"They have an anti-inflation program in place to end a decade of inflation at 60 percent," said European emerging market economist Charles Robertson at ING Barings in London.
Inflation had been cut to 40 percent, although the expectation was for a reduction to 33-34 percent, he said.
"But the way they have got it down is using the currency, and the currency has only depreciated by about 20 percent, so you have a real (inflation-adjusted) strengthening of the currency of 10 percent or more, which has meant a big widening of the current account deficit," Robertson said.
"This has sucked in a lot of imports, while export growth have been much slower. This has filtered through into the banking sector, prompting a liquidity squeeze," he added.
"People stopped investing in treasury bills, yields shot up, the stock market slumped and (there is) huge pressure put on the central bank for dollars as people pull out of the market."
A banking source estimated that some $4 billion had fled the country in the past few days.
The crisis was sparked by the central bank's demand for domestic banks to reduce their debt holdings denominated in foreign currencies in relation to their assets, which created huge demand for Turkish pounds.
The liquidity problems of a large domestic bank, Demirbank, excerbated the financial crisis and helped send interest rates on the money market to 150 percent, sending panic waves through the stock market.
The Istanbul stock exchange extended its losses on Wednesday, with the index of 100 leading shares closing down 1.3 percent at 9,512 points. In the previous session it had plunged 9.01 percent, below the 10,000-point level for the first time this year, to close at 9,641 points.
However, Robertson played down talk of a "contagion" spreading to other economies in the region.
"The comparison with Russia has been made but actually it's very, very different. Turkey is much smaller. The contagion effect is much less," he said.
Turkey has a three-year standby loan agreement for some $4 billion with the IMF, which is tied to economic reforms, notably cleaning up the banking sector, tax system and reducing inflation.
The World Bank has agreed a three-year loan facility for $3 billion but disbursements have been held up due to delays in bank sector reforms.
On September 28, a $750 millon World Bank loan was delayed after Turkish President Ahmet Necdet rejected a government decree for the privatization of the troubled Ziraat, Emlak and Halk banks, whose total losses since January amount to $25 billion.
The World Bank had already suspended in July the release of the $750 million -- allocated for banking sector reforms in Turkey -- after Ankara failed to finalize the legal framework for the privatization of the three banks before a June 30 deadline.— (AFP)
© Agence France Presse 2000
© 2000 Mena Report (www.menareport.com)