Turkey pays its last loan installment to the International Monetary Fund after a 52-year relationship, a triumph for Prime Minister Recep Tayyip Erdogan as government debt falls even as private borrowing surges.
The
Treasury in Ankara will make a payment of $422.1 million to the IMF
today, Deputy Prime Minister Ali Babacan said in televised remarks
yesterday. A decrease in government debt to about 40 percent of gross
domestic product from 78 percent when Erdogan came to power a decade ago
has helped drive lira borrowing costs below higher-rated countries
including India,Russia, Brazil and Chile.
The
decrease was countered by a surge in corporate borrowing over the
period, leaving Turkey “one of the most leveraged economies in the
emerging-market universe,” Goldman Sachs Group Inc. said in an e-mailed
report yesterday. Net external debt of $413 billion, about 51 percent of
GDP, puts Turkey in a league with other countries including the Czech
Republic and Poland, and the private sector’s pace of credit
accumulation is accelerating, Goldman said in a report from London by economists Ahmet Akarli and Michael Hinds.
“Turkey is a perfect example of the maturing of the emerging-market asset class,” Charles Robertson, global chief economist at Renaissance Capital in
London, said by e-mail yesterday. “Once weak, vulnerable and dependent
on external assistance, it’s now vibrant and a growth pole for its
region.”
While
the Turkish government “deserves praise” for fiscal discipline and
working its way out of IMF debt, “the private sector has taken its
place,” he said.
IMF Borrowing
Turkey
took its first loan from the IMF in 1961, according to Babacan in an
interview with CNBC-e yesterday. It last borrowed in 2008, and today’s
payment will mark the first time Turkey has no outstanding debt to the
fund since 1994, Babacan said. When Erdogan’s government came to power
in 2002, it owed the IMF $23.5 billion, according to the state-run
Anatolia news agency.
Turkey’s two-year lira debt yields
were more than 23 percent as recently as 2008. They fell four basis
points to 4.97 percent at 11:30 a.m. in Istanbul today, compared with
8.53 percent for local-currency debt in Brazil, 7.38 percent in India,
5.82 percent in Russia and 5.05 percent in Chile, according to data
compiled by Bloomberg.
Sovereign Yields
Yields
on two-year debt may fall as low as 4 percent amid global central bank
easing, while longer-term yields rise, Commerzbank AG senior economist Tatha Ghose said in e-mailed comments May 3. JPMorgan Chase & Co. economist Yarkin Cebeci predicted
lows of 4.5 percent on the same day, while Renaissance’s Robertson said
yesterday the best of Turkey’s bond rally is probably past, with room
for some “moderate compression” over the next year.
Maxim
Oreshkin, chief economist for Russia and Turkey at VTB Capital in
Moscow, said the current level of Turkish yields is “totally
unsustainable.” He predicted in e-mailed comments yesterday that they
could rise above 6 percent by year-end.
Last June, Turkey pledged $5 billion to the IMF to help with the European debt crisis,
which will make the country a net lender rather than borrower to the
fund. The money will be given on condition that Turkey could call it
back immediately, a clause Turkey is demanding because of its high current-account deficit, Babacan said.
External Shocks
Turkey’s
private-sector debt contributed to giving it the world’s biggest
current-account deficit after the U.S. in 2011. At $77 billion, it was
about 10 percent of GDP. The gap was the third-largest last year. The
deficit will probably be about 6.8 percent of GDP this year, according
to the average estimate of 21 economists surveyed by Bloomberg.
“This clearly increases Turkey’s susceptibility to external financing shocks, posing a potential threat to the exchange rate,
output and in the extreme, financial stability,” according to the
Goldman Sachs report. The accumulation of private sector debt could
prove “unsustainable,” it said, likening it to a geological fault line.
In
transforming from debtor to creditor, Turkey, whose almost $800 billion
economy is the largest in the Middle East, joins South America’s
biggest economy, Brazil. The Latin American nation was approved for the
largest loan in IMF history in 2002, more than $30 billion at the time.
Brazil paid the debt off in 2005, two years ahead of schedule. The
country also pledged $10 billion to the IMF last year as the fund sought
to boost its capacity amid a worsening in Europe’s debt crisis.
Changing Profile
“The
customer profile of the IMF is changing,” Burak Kanli, chief economist
at Finans Invest in Istanbul, said by phone yesterday. “In the decades
before the crisis its customers were Turkey,Indonesia, Mexico,
Brazil. Now it’s most of Europe - eastern and western. Turkey paying
off its debt and becoming a creditor to the IMF is a result of this
changing customer profile.”
Yields
on Turkey’s benchmark two-year debt have fallen 118 basis points this
year, the second-biggest drop among 19 emerging-market nations tracked
by Bloomberg, trailing Romania.
The extra yield investors
demand to hold Turkey’s dollar bonds rather than U.S. Treasuries fell
one basis point, or 0.01 percentage point, to 184 today, according to
JPMorgan’s EMBI Global Diversified index. That compared with an average
of 265 for emerging markets, the index shows.
Lira Trend
The lira appreciated less than 0.1 percent to 1.8107 per dollar, paring its drop this year to 1.5 percent.
Five-year
credit-default swaps rose one basis point to 118, having been more than
double that level a year ago. The nation’s risk premium is now on par
with Brazil and Israel, and lower thanSouth Africa, Russia or Indonesia.
Swaps
pay the buyer for the underlying securities or the cash equivalent
should a government or company fail to adhere to debt agreements. The
cost of the contracts rises as perceptions of creditworthiness worsen.
Erasing
Turkey’s debt to the IMF “is very important from a symbolic point of
view,” VTB Capital’s Oreshkin said. “Turkey is able to solve its
problems on its own and is able to attract capital.”
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