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Armenian, Assyrian and Hellenic Genocide News
Western Banks to Continue Lending Money to Turkey
by Joseph Kahn - New York Times - December 12, 2000
Posted: Wednesday, December 13, 2000 02:38 am CST
WASHINGTON, Dec. 11 -- Western bankers have vowed to continue lending money to Turkey, giving a vital boost to efforts to restore confidence in that nation's finances just days after the International Monetary Fund agreed to provide a multibillion-dollar emergency aid package, bankers and I.M.F. officials said today.
The commitments, which are considered nonbinding but are vital for Turkey's financial stability, were made at a meeting of representatives of 30 European and American banks in Frankfurt, where Turkish officials outlined an accelerated plan to sell state assets, reduce spending and close troubled banks. Bankers have organized a similar session to be held in New York on Wednesday.
"The international financial community will be supportive," said William R. Rhodes, a Citigroup vice chairman whose bank attended the Frankfurt meeting and organized the New York session. "People are optimistic that Turkey will implement its reform program as it agreed with the I.M.F."
The I.M.F. agreed last week to provide $7.5 billion in new loans and deliver about $3 billion in already promised loans early to bolster Turkey, where stocks plunged and overnight interest rates soared on fears that the nation's banking system could collapse. The turmoil raised fears not only that Turkey's ambitious economic overhaul would fail but also that investors would lose faith in the prospects of other major emerging economies.
Both Turkey and Argentina experienced a sudden drop in investor confidence late last month, posing the biggest challenge to the I.M.F. and the United States since the Asian financial crisis of the late 1990's.
The two nations are likely to receive emergency I.M.F. loans later this month, the largest bailout packages since an I.M.F. rescue of Brazil in 1998.
The troubles are linked to the sharp slowdown in the growth rate of the United States economy and the sell-off in American stock markets. Export-oriented developing nations in Latin America, Asia and the Middle
East have depended heavily on robust expansion in the United States to power their own tentative recoveries from a recession in the late 1990's.
Foreign investors began withdrawing credit lines from Turkey two weeks ago after fears developed that many Turkish banks, which are under heavy pressure to reorganize, had become insolvent. Argentina faces a different problem: investors there are worried that its slow-growing economy may not have the wherewithal to repay its hefty foreign debt.
In Turkey, the coalition government of Prime Minister Bulent Ecevit, acting with I.M.F. support, began an economic overhaul early this year intended to bring the economy up to European standards, part of its bid to join the European Union.
Turkey set up a strict currency management system, imposed budgetary discipline and moved to sell some state assets. The effort reduced government borrowing and sharply lowered inflation, but the program Forced Turkey's 81 banks to improve their operations or die.
Allegations of widespread corruption and the government's seizure of 10 banks last month caused investors to panic about the solvency of the banking system.
Gazi Ercel, the governor of Turkey's central bank, and Stanley Fischer, the No. 2 official at the International Monetary Fund, conducted today's meeting in Frankfurt, which was organized by Deutsche Bank and included representatives from Dresdner Bank and Commerzbank of Germany and Citigroup of the United States, among other major lenders.
Officials described the session as a "soft touch" appeal to bankers to stay engaged, an effort to forge a public consensus that Turkey's problems can be readily overcome.
One official briefed on the meetings said that there was a general sense among bankers that Turkey's economic plans made sense. But the official also said bankers present were not "ecstatic" about the situation and that Turkish officials would be left to negotiate loan commitments in follow-up sessions.
Over all, Turkey has about $25 billion in debt that must be paid back within a year, according to Moody's Investors Service. Turkish banks hold about $14 billion in such short-term loans. Though Turkey's overall debt burden is moderate, its banks could face a serious cash squeeze without continued foreign credits.
Turkey's aggressive program of selling state companies -- it promised to speed up the sale of its telecommunications and airline companies in conjunction with the latest I.M.F. loans ? also depends on the Willingness of foreign companies, and their bankers, to invest more money.
Early indications are that there is no rush for the exits.
After declining sharply during the crisis, foreign currency reserves held by Turkey's central bank have risen recently, to about $19 billion, Western officials said today.
"We remain optimistic about the stabilization program and its effects on the Turkish economy," Deutsche Bank's chief executive-designate, Josef Ackermann, said in a statement today.
Mr. Rhodes of Citigroup said his bank was prepared not only to keep its credit lines to Turkey open but also to increase its investments there, particularly if the government follows through on promises to allow more foreign ownership of local banks.
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