Argentina’s plight after receiving a $50 billion bailout illustrates the perils of making a deal with the International Monetary Fund, Turkish Treasury and Finance Minister Berat Albayrak said.
“Last year, a lot of people said Turkey would be worse than Argentina if it doesn’t make a deal” with the IMF, Albayrak said during a question-and-answer session at parliament’s planning and budget subcommittee on Wednesday. “Argentina has very serious political and economic problems a year after its agreement,” whereas Turkey is back on a growth track, he said.
Market speculation of a possible IMF agreement for Turkey intensified soon after Albayrak come to office, when the lira lost more than a quarter of its value in August last year. The crash pushed consumer inflation to over four times the official target of 5% and tipped the economy into its first recession in a decade. Turkish officials have repeatedly said economic fundamentals are strong, despite turmoil in financial markets, and ruled out seeking external support.
The government increased its target for economic growth to 5% for 2020-2022 after slashing this year’s forecast to near zero. Success will hinge on the strength of the private sector, investment and exports, with the government hoping cheaper credit will give the economy a kick. But youth unemployment is hovering near record highs and a gauge of manufacturing has been in contraction every month but one since April 2018.
In Argentina’s case, the deal may have been made too late, according to Piotr Matys, a strategist at Rabobank in London. Economists expect the Argentine economy to contract each year until 2021, while the currency continues to decline and both inflation and interest rates remain elevated at or above 40%.
“It’s all about preventing confidence among investors from collapsing,“ Matys said. “Once you cross a certain threshold, it is extremely difficult to restore it.”