World Bank President Robert Zoellick (L), Turkey's Prime Minister Recep Tayyip Erdogan (C), International Monetary Fund's Managing Director Dominique Strauss-Kahn (R)Turkish PM says sees IMF stand-by deal within days
ANKARA, Jan 11 - Turkey's Prime Minister Tayyip Erdogan said on Monday negotiations with the International Monetary Fund for a new stand-by loan arrangement were nearly finalised and a deal could be reached "within days or a week".
Though Turkey is not in urgent need of funds, IMF cash will help it rein in a fiscal deficit that ballooned last year as the government spent heavily to help the economy recover from a deep recession, induced by the global financial crisis.
"The negotiations with the IMF are now to a great extent wrapped up," Erdogan told a news conference.
"I think that this issue will be solved within days, a week, I am waiting for news from colleagues."
Erdogan's past reluctance to enter another IMF programme had made many analysts doubt whether a deal was likely any time soon, as a general election is due next year and the IMF is unpopular with voters.
The prospect of obtaining access to a large amount of funds at favourable interest rates appeared to have helped Erdogan overcome whatever reservations he had, as he gave the clearest signal yet that a deal was imminent.
"The IMF comment is significantly important because of two reasons, in our view. First, it came directly from PM Erdogan, who decides on an IMF deal at the end of the day," said BGC Partners chief economist Ozgur Altug in a note.
"Secondly, this is the first concrete statement from him, in which he gives a certain time."
The next step would be for Turkey to invite an IMF team to Ankara to settle terms and report back to Washington.
An IMF spokeswoman in Washington said it had discussed thoroughly with Turkey policies which could support an IMF programme and could send a team quickly if requested.
Analysts expect any stand-by arrangement to be for $20-30 billion covering a 2-year period.
Turkey and the IMF have been locked in negotiations since a previous $10 billion stand-by loan arrangement expired in 2008, but investors hopes of a deal had begun to fade, until a series of media reports and ministers comments at the turn of the year reignited optimism.
The Turkish lira extended its gains to the dollar after Erdogan's statement. The lira traded at 1.4485 on the interbank market, before closing at 1.4514 versus Friday's close of 1.4715, and stood around 3.7 percent stronger than it was before speculation of a deal first flared on Dec. 31.
Bonds also firmed. The yield on the Aug. 3. 2011 benchmark bond closed lower at 8.64 percent in Monday-dated trade, and fell further to 8.57 percent in next-day trade.
Stocks, which pushed past two-year highs in the first week of 2010, ended 1.6 percent down against Friday's close. The index rose around 97 percent in 2009.
Investors regard the fiscal deficit as the main risk to Turkey's economy, but an IMF accord would offer some assurance about the government's commitment to reining in the deficit.
Last week, Turkey demonstrated its ability to raise funds with the successful launch of a $2 billion 30-year Eurobond issue last week.
Ratings agency Moody's upgraded Turkey's sovereign debt rating a notch to Ba2 on Friday, noting the country's ability to absorb shocks, bounce back from recession and tap international markets.
Turkey has resisted IMF terms, saying some conditions would hurt jobs and a nascent recovery, following an economic contraction seen at around 6 percent in 2009.
However, some analysts believe the IMF funds could help Turkey avoid a squeeze in its credit market and allow the economy to outperform forecasts of 3.5 percent growth this year.
1 Turkish Lira (TRY) = 0.689 (USD)
1 Turkish Lira (TRY) = 0.4752 Euro (EUR)
1 Turkish Lira (TRY) = 0.4752 Euro (EUR)
