Wednesday, September 23, 2009

IMF rumblings

I am currently in the brainstorming process for an article on the IMF that will feature in a special supplement, to be prepared jointly with Daily News, Hurriyet and Referans and distributed the weekend before the meetings.

I am thinking about devoting some part of the article to misconceptions about the IMF, and a natural extension would be misconceptions on the IMF-Turkey saga. I don't know if these will feature in the piece at the end of the day, but just to set the record straight, I will address two important misconceptions:

First, the fact that I favor an IMF deal does not mean that I believe Turkey will sink without the IMF. It sure will not. It is just that an sans-program will surely be more costly than with program, especially given that there is a revamped leaner and meaner IMF out there (this is one my key themes for the column, so I won't give out any more spoilers). This is a point Econ tzar Babacan has emphasized a few times recently as well. When I say more costly, I am not only thinking about borrowed money and opportunity cost of holding reserves (wait for the column for more on these) but also the external financing and credibility.

Second, maybe it is just me but I just do not understand how Turkey could do without the IMF program if fiscal discipline was sustained. Sure, if the markets buy it, from a government (or rather PM) who has a really bad track record, facing elections in a year or two- and therefore is completely time inconsistent in terms of fiscal policy. In fact, I doubt whether the markets would even buy a constitutional fiscal rule after the PM's latest candid remarks on his appetite for Central Bank independency. Anyway, the fiscal side of the Medium-Term Economic Program has gone tangent to sustaining fiscal discipline, to use the PM's own economic phrasebook, so this argument is just academic...

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