Turkey to go falco?

Daniel Davies d_squared_2002 at yahoo.co.uk
Thu Nov 30 03:38:11 PST 2000


Not seen anything about this on the list, but the market is veritably abuzz with it. Turkey's got U$24bn of reserves, which it appears to be burning at a rate of $8bn/week, and $24bn of short term debt to roll over in the next month. It's probably too good a pupil of the IMF to actually default, but some form of falco is certainly definitely on the cards. They've got a $bn program in place which looks set for accelerated disbursement, but the political vacuum in the US, plus the notorious lack of a lender of last resort for Europe, plus the fact that Germany (the obvious geopolitical interest) has historically been steadfastly anti-bailouts, does not look good for an official rescue.

If Turkey does fall over, it'll be a black mark against the IMF (that's the actually existing IMF, not the idealised international lender of last resort that Brad likes). It will, to put it bluntly, be entirely their fault. Turkey came through the 1995 Mexico, 1997 Thailand and 1998 Russia crises without much problem, despite having all the signs of impending falco and much worse prospects for international support than a lot of countries which did fall over. But then the IMF stuck their oar in.

Turkey used to have a merry old banking system, with terribly opaque accounting, much ownership of banks by industrial groups, etc, etc. It also used to have a very odd feature, whereby the main asset of the banking system was government debt; since the actually quite strong industrial sector didn't need much in the way of lending, the banks existed to channel retail deposits to finance the government debt. It was a topsy-turvy system, which used to frighten outsiders, but it worked.

Enter the IMF, in its new guise as financial services consultants to the world. In comes new-style accounting, out goes ownership of government bonds, down goes the deficit, bang goes most of the banking system, to various degrees. A ramshackle and over-indebted economy quickly transformed into a theoretically pure basket case. A woeful lesson in not fiddling around with things you don't understand. (any turks on the list, please argue with me if I'm wrong)

Be interesting to see what happens in the event of a default/devaluation/etc. There's a silly rumour going round that the hedge funds are dead, which a glance at the surveys reveals, ain't so. There's still a fair few billion in macro funds these days, and repo'd up, it could knock over Poland and Hungary without much trouble. Then the pressure would be right back on Argentina .... potentially very nasty.

hey ho hum

dd

===== "The banker must at all times affect a respectability that is more than human ... for this reason, he is typically the most romantic and least realistic of men"

John Maynard Keynes

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