Turkey set to agree option to draw $20-40 billion IMF funds

By Hidir Goktas

ISTANBUL (Reuters) - Turkey is set to agree to a deal with the International Monetary Fund that will give it an option to draw $20-40 billion in funds if needed to weather a global credit crisis, a ruling party source said on Thursday.

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

Business leaders and economists say an IMF deal will be an important stabilizing 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.

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.

Economy Minister Mehmet Simsek later told a news conference that the content of an IMF programme was still being worked on and he could not confirm the figures quoted by the media.

Turkey's government, expecting a sharp economic slowdown 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 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.

The news of an expected IMF deal eased losses for the lira, 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.

DOUBTS OVER LOAN SIZE

Newspapers Radikal and Zaman earlier reported Prime Minister Tayyip Erdogan as telling his party's central executive board on Wednesday evening that an IMF accord was close and Ankara may receive some $20 billion-$40 billion in loans.

Analysts were skeptical about the deal's reported volume.

"It does not make sense for ... Erdogan and other AKP authorities to be that explicit about a new IMF program unless an agreement was really imminent," said JP Morgan Chase economist Yarkin Cebeci. "We still think that a package in excess of $25 billion is unlikely and our estimate remains in the range of $15-20 billion."