IMF warns Turkey about loans

IMF released its report on Turkey which describes the preliminary findings of IMF staff at the conclusion of certain missions including official staff visits

IMF warns Turkey about loans

The International Monetary Fund, or IMF, voiced an optimistic outlook on Turkish economy, saying the Turkish economy maintained its strong post-crisis recovery throughout 2010, and with growth expected to exceed 8 percent this year, output will surpass its pre-crisis level by a comfortable margin, one of the few countries in Europe to achieve this milestone.

IMF released its report on "Turkey ? Second Post-Program Monitoring Discussions, Preliminary Conclusions" which describes the preliminary findings of IMF staff at the conclusion of certain missions including official staff visits.

"For 2011, growth is expected to reach 4.5 percent, the current account deficit to widen to around 6.5 percent of GDP, and year-end inflation to reach 6.5 percent," IMF said.

IMF's growth forecast for Turkey is 7.8 percent for the year 2010, while OECD had predicted a 8.2 percent growth and the European Commission expects Turkey to grow by 7.5 percent in 2010. Turkish government's growth target was set at 6.8 percent although Turkey has recorded a 8.9 percent growth in first three quarters.

IMF said employment is also continuing to recover, although higher labor force participation itself a sign of rapid recovery?is slowing the fall in the unemployment rate, adding that headline inflation remains highly volatile and elevated, but core inflation recently fell to an historic low partly reflecting temporary factors, including base effects, exchange rate appreciation, and price setting still attuned to the previous phase of the economic cycle, that more than offset the rapidly closing output gap.

Policy recommendations

In policy recommendations section of the report, IMF said policies that discourage excessive uptake of external savings and limit resource-misallocation and pricing risks will temper the magnitude of the economic correction if capital inflows slow or reverse.

"The authorities' policy response during and in the immediate aftermath of the global financial crisis was broadly appropriate and paved the way for the subsequent rapid recovery. However, the external environment has evolved rapidly, and Turkey's policies should continue adjusting to successfully navigate the challenges ahead," it said.

"Safeguarding systemic financial stability is a sine qua non for consistently achieving price stability, and similar tools can be used to support both goals," it noted.

Revenue and fiscal balances have rebounded strongly in 2010, but a greater effort is needed to stem macroeconomic pressures, IMF said, adding that while the authorities' 2010 Medium-Term Program (MTP) appropriately targets a significant reduction in spending and improved debt dynamics, it also includes buoyant revenue derived from a transient import boom.

IMF also warned about loans in Turkey, saying, crisis-era relaxation of regulations for restructuring loans and general provisioning is no longer necessary and should be withdrawn in full.

"Moreover, regulatory standards and guidelines should be tightened. In the context of dynamic housing construction, rapid growth of housing loans (including withdrawal of equity), and credit concentration to both developers and end-buyers for the same property pose risks if unchecked," it said.

On historic-low interest rates, IMF said the option to raise interest rates should be preserved, adding that excessive comfort from the expectation that interest rates will remain low for an extended period should be avoided to discourage the financial and real sectors from lengthening their duration mismatches.

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Last Mod: 18 Aralık 2010, 16:48
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