Recent Turkish statements in favor of a two-year IMF stand-by agreement is no more than another "maybe" that has served the government very well for the past few months. The sides have been in talks for sure but more like Turkey receiving technical assistance from the IMF staff as any IMF member can. Nonetheless, the government's Plan A remains to go through the heavy redemption in H1 2010 with its own resources, and rely on the IMF only in the case of a currency shock and/or major spike in bond yields.
Turkey doesn't need an IMF program. It can maintain investor confidence as long as it continues implementing the fiscal tightening envisioned in its medium-term economic program announced in October, keeping an IMF stand-by as a rainy day option. Facing parliamentary elections in Q2 2011 and presidential elections in 2012, the ruling Justice and Development Party (AKP) will want as much fiscal flexibility as possible, as demonstrated by the substantial pension increases.
Moreover, the absence of an IMF deal gives the ruling party more political capital. Having taken pride in Turkey being the only G-20 country not to resort to a government bailout of the banking sector, Erdogan wants to avoid Turkey becoming the first G-20 member to receive IMF support.
The major special consumption tax hikes on alcohol, tobacco, electricity and gasoline right before year-end should also not be taken as a guarantee that a deal with the IMF will happen. Many times since May 2008 (when Turkey's last stand-by agreement ended) that the government has floated IMF rumors ahead of major fiscal hikes, apparently to convince the business community to accept the changes.
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