Turkey's stocks slumped 8.8 percent on Friday, December 1, compounding a devastating week, as overnight interest rates soared to more than 1,000 percent because of a cash crunch.
The Istanbul market's index fell 770 points to finish at 7,978 after the central bank reduced the emergency funding extended since last week for the cash-starved markets, analysts said.
The stock market index has dropped 2,831 points, or 26.2 percent, in the past week.
After turning off its taps to banks, the central bank sold 850 trillion Turkish lira (1.4 billion euros, $1.2 billion) at a record interest rate of 1,133 percent in a repurchase (repo) operation on Friday.
The interest rate at the Istanbul stock exchange's repo market, meanwhile, hit 600 percent on average, while exceeding 1,000 percent in some transactions during the day.
An announcement by the IMF that additional resources could be released for Turkey to alleviate the severe liquidity squeeze that had sparked panic at the markets failed to calm investors.
But it raised hopes for a recovery next week.
"It is very hard to predict when the balance will be restored, but we expect a certain improvement in the middle of next week," said Ziya Anildi, a dealer at Bank Express.
"The most significant factor will be what the IMF will extend as an additional support," he added.
IMF managing director Horst Koehler said late Thursday that, "based on the implementation of strong policies I would be willing to recommend to the executive board that additional resources be made available to Turkey."
Tolga Koyuncu, a dealer from Iktisat Investment, said the index would begin rising if the amount of the expected IMF funds was revealed next week when Fund officials were due in in Ankara.
"This could trigger inflow of money from abroad, which will pull down the interest rates," he added.
But others warned that weak banks could go under due to the high interest rates and the persisting lack of confidence between banks, which had prompted them to stop lending money to each other.
"The situation is still very serious. I wonder how long the banks can endure to such interest rates," said independent economist and newspaper columnist Asaf Savas Akad.
Despite the ongoing caution, experts hailed government measures Thursday to contain the turmoil, which included the long-delayed privatization of Turkish Telekom, a major part of a tight anti-inflation program, backed by a four-billion three-year loan by the IMF.
Also on Thursday, the Central Bank stopped selling Turkish lira in return for foreign currency, effectively cutting lira funding and tightening the liquidity squeeze.
The decision constituted a return to funding limits originally set in the deal with the IMF, which had been breached for the past six trading days to meet heavy cash demand from banks.
"The moves were very positive. The risk of devaluation fell down to nearly zero, and what is the most important thing for us, rumors of devaluation stopped," Koyuncu said.
Treasury undersecretary Selcuk Demiralp said the demand for foreign currency began to reduce Friday following the central bank decision.
"There was an inflow of some $200 million into the central bank by noon, meaning that the outflow has been contained," Demiralp said.
"We are about to overcome the liquidity crunch, the situation is improving," he added, insisting that the country's economic program was on track.
The Turkish stock market has been falling sharply since last week when panic hit the markets amid speculation over bank bail-outs and rumors of a devaluation.
Delays in privatization and the introduction of structural economic reforms by the government were seen as another major factor destablizing the markets.
The turmoil caused a massive flight into foreign currency, a liquidity squeeze, and a sharp fall on the stock market, which prompted injections of liquidity by the central bank.— (AFP)
© Agence France Presse 2000
© 2000 Mena Report (www.menareport.com)