"Turkish flu" hits Europe's emerging markets

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"Turkish flu" hits Europe's emerging markets By Adrienne Roberts in London Published: December 1 2000 17:21GMT | Last Updated: December 1 2000 20:20GMT

Turkey's liquidity crisis took a savage toll on the Istanbul stock market on Friday after money market rates shot up to more than 1000 per cent and investors fled out of equities into cash. But the shock waves were also felt further afield as Russian and Hungarian stock markets slumped.

In Istanbul, the ISE National-100 index, which has fallen almost 40 per cent in the past fortnight, had shed 8.8 per cent by the close of trade, setting a record low for the year of 7,977.83.

The heaviest losses were suffered by financials, hit by the liquidity crunch, which in turn was linked to corruption enquiries being held into the activities of ten banks in receivership. Fitch Ibca, the international credit rating agency, announced it had placed Demirbank, the ninth largest of Turkey's 81 banks by assets, on negative credit watch.

Some analysts fear the country's liquidity squeeze could escalate into a full-blown crisis. And Lehman Brothers suggests that, two years after European emerging markets were rocked by the crisis in neighbouring Russia, these markets are at risk of catching "Turkish flu."

Turkish volatility has spread to its neighbours. Russian equities, for example, closed lower on Friday, depressed by foreign selling. The RTS index dropped 1.19 per cent to 141.71. Traders said several investment funds had made heavy losses in Turkey and were having to liquidate positions elsewhere to compensate.

And Hungarian equities shed 3 per cent, also under pressure as foreign investors pulled out of the market. The BUX index fell to 6,684.74, its lowest level for the year.


-- Martin Thompson (mthom1927@aol.com), December 03, 2000


Monday, 4 December, 2000, 15:05 GMT Turkish crisis deepens

Turkey is holding emergency talks with the International Monetary Fund (IMF) in an attempt to tackle the growing financial crisis in the country.

Interest rates hit 1,000% on Friday and the Turkish stock market has slumped 40% in a fortnight as the economic woe spreads.

The task is now to preserve these gains and strengthen policies and market confidence in the Turkish economy IMF chief Horst Köhler

On Monday the stock market dropped another 8% as the main interest rate soared to 19,500% - compared to the 40% it stood at a fortnight ago.

It all added urgency as the special IMF team continued what is expected to be 10 days of meetings with Turkish treasury officials.

Reports suggest that Turkey wants $5bn in short term loans - but the IMF is expected to impose strict conditions.

Banking probe

These type of conditions - likely to include further privatisation and cuts in state spending - have already triggered widespread demonstrations.

The current crisis was largely sparked by a corruption probe into 10 smaller banks which were placed in receivership.

The economic policies, the structural reforms... have an effect - it means that wage rises are low, unemployment is rising - people feel extremely uncertain The BBC's Chris Morris

The investigation has now been widened, leading to fears of a growing banking crisis. The banking system is reported to be close to a standstill as many Turkish banks are too wary to deal with each other.

There have also been rumours of a possible currency devaluation - which would destroy Turkey's anti-inflation programme - and growing fears that privatisation plans might be slowing down.

The IMF delegation was led by the Fund's European department director Michael Deppler.

As it began its work, IMF managing director Horst Köhler added his support, saying Turkey had made significant progress under its reform programme.

"The task is now to preserve these gains and strengthen policies and market confidence in the Turkish economy," said Mr Köhler.

Quick outcome needed

He said he hoped talks would be concluded quickly to enable the IMF to decide on an enhanced support package for Turkey in time for a meeting on 21 December.

An announcement by the IMF over the size of the additional fund for Turkey could reduce some of the pressure on the markets, lead to an inflow of money into the country, and so pull down interest rates.

The government has based much of its policy on slashing inflation, and has used a high exchange rate and tight monetary conditions to do this.

Turkey's central bank governor Gazi Ercel said in a Sunday newspaper interview that the country had $18.8bn reserves to deal with the "speculative attack".

Bankers are reported to have said about $6bn has been sold by the central bank since the start of the crisis as foreign investors pull their money out of the country.

The central bank's room for manoeuvre is also restricted by an existing $4bn IMF-imposed anti-inflation plan.

BBC correspondent Chris Morris said: "The economic policies, the structural reforms, as we have seen elsewhere, especially in Asia, have an effect - it means that wage rises are low, unemployment is rising - people feel extremely uncertain."


-- Martin Thompson (mthom1927@aol.com), December 04, 2000.

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