WRAPUP 3-Turkey set to agree option to draw $20-40 bln IMF funds

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By Hidir Goktas

ANKARA, Nov 20 (Reuters) - Turkey is set to agree to a deal with the International Monetary Fund that will allow it to draw $20-40 billion in funds if needed to weather the global credit crisis, senior ruling party sources said on Thursday.

Turkey is not under the financial strains that have forced Iceland, Ukraine, Hungary, Serbia and now Latvia to seek IMF aid, but has begun to see a slowdown in its $700 billion economy and experienced a sharp currency depreciation.

Business leaders and economists say an IMF deal will be an important stabilising force as Turkey seeks to cope with global financial dangers. Turkey's last $10 billion regular stand-by loan accord, part of a series of loan programmes which helped it emerge from a 2001 financial crisis, expired in May.

"An IMF programme would be positive as it would help bring policy discipline and enhance credibility," Goldman Sachs analyst Ahmet Akarli said in a research note.

A senior source from the AK Party's top executive told Reuters the size of the IMF deal would depend on ongoing talks regarding Turkey's 4 percent economic growth target for 2009. Another party source confirmed the information.

Prime Minister Tayyip Erdogan told a news conference that the exact size of a possible IMF deal had not yet been decided but he expected progress by next week and Turkish authorities may subsequently meet with IMF officials.

"The amount of the credit is not clear yet but we have our own offers and of course the IMF will come with counter-offers. The content of the deal is sensitive at this point," he said.

The news of a possible IMF deal eased losses for the lira IYIX=, which traded at 2006 levels after the central bank announced surprise interest rate cuts on Wednesday evening.

The lira has lost a third of its value since early October as investors move out of riskier emerging markets that are saddled with huge current account deficits.

Turkey's government, expecting a sharp slowdown in economic growth to around 3 percent in 2008, is concerned about signing up to a deal that would limit its options to boost growth next year.

"In an agreement with the IMF, more important than the volume is that one is accredited with the IMF... We expect talks to be completed and an agreement reached soon," the senior AK Party source said.

He said the accord would be a precautionary deal, rather than a regular stand-by agreement. Under a precautionary deal, Turkey would have access to draw funds if required, like having an overdraft credit facility at a bank, whereas a standard stand-by deal would automatically bring in funds.

A precautionary deal would also allow Turkey greater flexibility over its tax and spending policies compared with a regular standby deal which would set specific budgetary goals.