Turkey to go falco?

[Daniel Davies]

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

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"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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