IMF eyes Turkey’s current-account deficit

The IMF is in Turkey this week to review its USD 10 bln 3-year stand-by loan, at a time when the country’s EU accession course is in doubt and the stronger lira has led to a huge rise in the current-account deficit.

The current-account deficit in Turkey — a key indicator of macroeconomic stability — rose by 25% on the year-earlier period in January-April 2005 to USD 7.1 billion.

A strong currency makes imports cheaper and exports more expensive, thus widening external deficits.

A big current-account deficit is typically covered by either foreign borrowing or foreign investment. Worries that investors foreign borrowing could become more expensive or that foreign investment inflows will fall have risen since two founding EU member states rejected the EU Constitution, apparently partly over fears of expansion to Turkey.

However, with inflation on target at 8.7% in April, compared with an annual target of 8%, the Istanbul Stock Exchange and the Turkish lire have so far reacted fairly calmly to the French and Dutch Nos.

During its visit the IMF is expected to remain cautious about any fiscal stimulus plans that cannot be financed. For example, it is concerned about recent diesel for farmers and plans to restructure social security debt.

Fiona Mullen