Turkey unlikely to obtain IMF funds as Fed prepares to hike - FDD director

Turkey is unlikely to obtain financial assistance offered by the International Monetary Fund to emerging markets because President Recep Tayyip Erdoğan is reluctant to abandon his influence over autonomous state institutions, Aykan Erdemir, senior program director for Turkey at the Foundation for Defence of Democracies (FDD), said in an interview for Ahval’s podcast series 12 Minutes on Tuesday.

This week, the IMF urged emerging markets to take swift action to deal with the global fallout from interest rate hikes by the Federal Reserve, which are expected to commence this year due to a surge in inflation. Countries with high inflation and weak institutions are particularly vulnerable and may apply for financial assistance provided certain criteria are met, the fund said.

“The organisation would definitely ask Turkey to adopt certain reforms for a bailout of such a significant amount of money,” said Erdemir, who is a former Turkish parliamentarian. “Conditionalities for a possible bailout would include rule of law, right to due process, property rights, transparency and accountability.”

Erdoğan would not agree to abandon his newly acquired executive hold over public institutions in return for IMF support, Erdemir said. Erdoğan won vast new executive powers at elections in 2018 and has wielded them via presidential decree, bypassing parliament and other key bodies.

Turkish asset prices have been decoupling from other emerging markets after the Turkish central bank, acting on Erdoğan’s orders, cut interest rates late last year while others tightened monetary policy. The lira slumped by 44 percent in 2021, with most of the declines occurring since September, and inflation accelerated to 36.1 percent in December. Turkish interest rates, net of inflation, stand at a negative 22 percent.

Erdemir said that the unorthodox economic and monetary policies ordered by Erdoğan, who has effective executive control over the central bank, would lead to further lira depreciation this year.

Erdoğan has frequently ruled out any financial assistance from the IMF, saying an era of loan programmes for the country is now over. Turkey last completed an IMF programme fourteen years ago.

In a statement by leading IMF officials on Tuesday, the fund said financial aid for countries would be contingent on pledges of structural reform. It also urged countries with high inflation to tighten monetary policy, allow their currencies to depreciate, cut back on ad hoc financial support for businesses and to implement an effective fiscal programme.

The Erdoğan government’s so-called economic miracle in the early years of its rule, when it followed an IMF bailout when gaining power in 2002, came as a result of IMF-backed structural reforms, Erdemir said. The fund would also impose strict conditionality this time around, he said.