Turkey Tries to Resist Aid From I.M.F.

By LANDON THOMAS Jr.
ISTANBUL — Not so long ago, countries like Turkey — fast-growing but prone to missteps — would go hat in hand to the International Monetary Fund during just about every big financial crisis to beg for money to bail them out of their difficulties.

How times have changed. These days, Mehmet Simsek, Turkey’s top economic policy maker, is doing everything he can to try to persuade the world that his government is not in need of the typical multibillion-dollar aid package from the I.M.F.

Turkey’s budget deficit is negligible, Mr. Simsek says. Its banks are well capitalized. And Turkish public and private debt are low as a percentage of gross domestic product.

“We have good policies,” Mr. Simsek said in an interview at the Swiss Hotel in Istanbul, where he had come to defend his government’s economic policies at a World Economic Forum conference. “One would hope that the markets would say that there is little role for the I.M.F.”

But is anybody listening?

In the middle of a global financial panic, investors, suddenly risk-averse, care little for such virtues. Like other emerging economies around the world, Turkey’s stock market and currency have been battered as foreign capital — once enamored with the country’s buoyant growth and successful economic reforms — has fled en masse.

Now, whether it wants to or not, Turkey is faced with the awkward prospect of being forced to accept stringent fiscal conditions to obtain I.M.F. money to replace the disappearing private capital just as its economy is caught in the global slowdown.

Having thought they were done with the I.M.F. after completing a three-year $10 billion program this May, Turkey’s policy makers cannot help asking why they have to pay the price for a crisis that, unlike previous ones, was not their doing.

But not all of Turkey’s problems can be laid at the door of others.

Turkey may only grow 2 percent next year, nowhere near what is necessary to provide employment opportunities for its young and growing population. About 40 percent of Turkey’s youth population is estimated to be unemployed.

Further, Turkish corporations gorged on easy foreign debt, leaving them saddled with obligations that far surpass their dollar assets. UBS estimates the mismatch to be $73 billion.

While an agreement could come at any time, talks between the Turkish government and the I.M.F. are now suspended, with Turkey pushing for more spending flexibility and the I.M.F. advising fiscal prudence.

Mr. Simsek says what is needed is a precautionary stand-by agreement and continued monitoring, but many outside investors say that Turkey requires a more direct rescue — akin to binding pacts reached with Ukraine, Pakistan and Hungary — to appease fretful markets.

Mr. Simsek’s bold talk has found loud echoes in all corners of Turkish life — from the intelligentsia, to the corporate sector to the man on the street. And it highlights a pressing economic and political dilemma for many emerging economies which over the years have imposed painful and difficult reforms, finally reaped the benefits and now — as foreigners retreat — find themselves pulled into a time warp they thought they had left behind.

Over the years, the Turkish stock market has come to define the essence of the high-risk, high-return calculus that investors weigh when they invest in emerging markets. Through 2001, spectacular market rallies would inevitably conclude with a crash and a currency collapse as weak governments and poor economic decision-making took their toll.

Still, under the government of Recep Tayyip Erdogan, Turkey has made enormous strides since its last crash in 2001. Inflation has shrunk to 9 percent, from 60 percent, G.D.P. per capita has tripled to $10,500 and foreign direct investment reached $19 billion last year.

The main downside has been a rise in Turkey’s current-account deficit, which was mostly a consequence of the investment influx.

It was a wonderful time to be part of the Turkish business elite. And as the markets rose, a new generation of Turkish billionaires emerged.

Listening to the young heads of two of Turkey’s largest banking families — Suzan Sabanci Dincer of Akbank and Ferit Sahenk, the chairman of Dogus Holding — one may be tempted to think that Turkey’s economy will emerge from the crisis stronger than before.

“Wow, that is optimistic,” said a surprised moderator at one of the World Economic Forum sessions here. “Are you really saying you can get over this?”

Erkut Soyak, the chairman of a large industrial conglomerate, has a longer memory. The activities of Soyak Holding — real estate development, energy and construction — lie at the core of the robust 7 percent growth rates Turkey has averaged since 2002. But with banks no longer financing these investments, he has had to shelve development projects worth close to half a billion dollars in recent months.

“We are investors,” he said, sitting in the spare boardroom next to his office located in central Istanbul. “When we don’t invest that is when the trouble starts and you start to see more unemployment. All financing now has stopped — even short term.”

The draining of the credit pool is already having a visible effect.

Just down the hill from the conference, past rows of empty luxury stores selling Marc Jacobs handbags and Jimmy Choo shoes for $1,000, Yavuz Aydemir, a 62-year-old pensioner, reeled in a gray mullet from the brilliant green waters of the Bosporus and considered his country’s condition.

“When America coughs, the world catches a cold,” he said. But plunging markets have not caused him to panic. He keeps his $10,000 in life savings in a Turkish bank and has trust in the currency and his government.

“The foreigners may be running, but we Turks — we don’t scare so easily,” he said with a laugh.

Turkish financiers may not be running scared but there is a general frustration — as well as a sense of irony — that a crisis that began with the broad dispensing of low-income loans in places like California and Arizona is forcing them into the arms of the I.M.F. — again.

Some Turkish bankers talk scornfully of the amounts of leverage taken on by American investment banks.

That Turkish banks, which less than 10 years ago did little more than speculate in the local bond market, can now lecture their American counterparts on their risk profiles underscores the extent to which the tables have now turned.

“The problem is not with us,” said Ergun Ozen, the chief executive of Garanti Bank, a leading commercial bank, in explaining why Turkish banks have stopped lending. “It is with the international banks. They used to lend a lot to Turkey. Now they don’t have any money for us.”


Copyright 2008 The New York Times Company