Apr 19 2019

Turkey a critically ill patient needing radical treatment of IMF - analyst

The depth of Turkey’s economic crisis leaves that country with little real alternative but to go to the International Monetary Fund (IMF) for financial assistance, said Desmond Lachman, a resident fellow at the American Enterprise Institute, in the Hill on Thursday.

According to Lachman, while countries often seek the IMF’s financial support with the same enthusiasm that patients seek radical treatment from their oncologist, Turkey’s situation is similar to a critically ill patient who has little option but to ask for his physician’s help.

Lachman said that, despite that situation, the economic crisis in Turkey was likely to deepen, as the Turkish President Recep Tayyip Erdoğan was in complete denial about the gravity of economic downturn in the country.

Both Turkish and IMF officials last week denied talks over a new stand-by agreement, while according to economists, Turkey is hoping to implement an IMF-style program but without the IMF itself.

Inflation in Turkey surged last year after Turkish consumers and investors sold the lira due to concerns about an overheating economy and a political spat with the United States, which saw the country’s currency sink by almost 30 percent against the dollar. The country’s economy has contracted for two-straight quarters, meaning Turkey has entered a technical recession, which is expected to continue in 2019.

“If ever a country was facing a currency crisis that cried out for IMF help, it has to be Turkey,” Lachman said.

According to the analyst, the Turkish lira has resumed its downward march in recent weeks, despite the fact that the central bank has raised interest rates to 24 percent and has spent one-third of its international reserves to support the currency.

“Absent a successful attempt to reverse the currency’s decline, there is every reason to fear that the worst of Turkey’s economic problems lie ahead of it,” Lachman said, citing Turkey’s increasing private debt, which he said could lead to a wave of corporate debt defaults.

If the first stage of currency crisis resolution is that policymakers recognise that there is a problem, there is a lot to worry about Turkey, the analyst said, adding that Erdoğan kept on supporting his unorthodox economic opinions that undermine investors’ confidence. 

“It is regrettable that President Erdogan is yet to recognise that his government’s economic policy credibility is in shreds and that he desperately needs the imprimatur of the IMF to restore that credibility,” Lachman said.