Turkey’s economy is struggling after its currency the lira plunged to record lows earlier this week and the country issued retaliatory tariffs on US goods.
The last time Turkey went to the IMF for financial help to bail out of its economic problems, for the eighteenth time, was in 2001, where the White House put pressure on the Washington-based lender to agree to a rescue package.
But experts warn that it might not be as easy getting help from the IMF without the US’s support.
William Hale, an emeritus professor at SOAS in London with special focus on Turkey, said that because of this “clash” with the US – which is one of the largest IMF shareholders – getting a loan could be a challenge.
He said: “They might do so again if it was necessary but are likely to demand harsh conditions.”
Esra Özyürek, an associate professor in contemporary Turkish Studies at the London School of Economics, told PF International that “if things get even worse [an IMF bailout] might be the only viable option” and agreed that the conditions to secure such a loan might “be more difficult this time”.
Although, she added the Turkish president Recep Tayyip Erdogan might not be interested in going to the IMF for a loan because it would require him to change the way he “runs and controls” the economy.
Currently the state is run like “a family business” and until this changes Turkey cannot have a sustainable economy, she said.
Qatar pledged today to give Turkey $15bn. But Mohamed El-Arian of financial services giant Allianz said it was still not enough to avoid the need for an IMF loan.
He said on Twitter that this was part of the “government’s strategy to avoid the IMF by finding alternative external support”.
#Bloomberg reporting #Qatar pledged $15 billion "in direct investments in #Turkey."
— Mohamed A. El-Erian (@elerianm) 15 August 2018
This is part of the #Turkish government's strategy to avoid the #IMF by finding alternative external support.
To be a sustainable stabilizer, funding needs to be larger and reach the central bank
A decree signed by the Turkish president raised the tariffs on US imports of cars to 120%, on alcoholic drinks to 140% and on tobacco to 60%. Tariffs on cosmetics, rice and coal were also increased and Turkey has threatened to boycott US electronic products.
Turkish trade minister Ruhsar Pekcan told the state run Anadolu news agency that the doubling of tariffs on some imported US products would amount to $533m.
Turkey’s currency the lira plunged by more than 20% in response to US sanctions last week, worsening the already struggling economy.
Since January, the currency has lost more than 34% of its value.
Turkey’s economy is highly dependent on foreign debt and as it borrows money to pay the interest of its debt in dollars, the more expensive the dollar is to the lira the more difficult it is to pay back.
Turkey could go to the IMF for a bailout loan to pay back this external debt, deal with high interest rates and its account deficit, which has widened to 5% of GDP. It is estimated that Turkey’s external financing needs in the year ahead are more than $200bn, or around 25% of GDP.
However, shortly after the tariffs were announced today the lira slightly recovered against the dollar by 3%.
Özyürek also said that to get the economy back on track: “Turkey needs to cut down excessive spending especially in mega construction projects and luxury spending of the palace.”
Last year, the president’s summer palace with 300 rooms was put under construction for Erodgan, costing more than $600m.
