Turkey CEF Would Profit From Economic Reform Agenda

Turkey's Turkish Investment Fund (TKF) closed-end fund has been on roll since mid-August but may hit a wall unless a robust economic reform plan is put in place and acted upon.

Five years of strong economic growth averaging 7.4% per year were the primary reason the pro-business government of Recep Tayyip Erdogan received an overwhelming mandate for a second term this summer.

Also at risk is the strong lira which has risen sharply both because of high Turkish interest rates and because it is significantly exposed to the carry trade, in which investors borrow money in low interest rate currencies such as the yen and invest it in high-yielding currencies such as the lira which offers real returns of about 10 per cent.

According to the Financial Times, the IMF team negotiating with the Turkish government is particularly concerned with the country's economy because of its large current account deficit equal to roughly 8 per cent of GDP and because companies have huge foreign currency borrowings. On the positive side, Turkey has been attracting lots of foreign investment, which also could be a factor in TKF's upswing. Its economy is steadily improving as well. Inflation was up to 69% as recent as 2001, and now it is down below 10% with an average GDP growth of 8% over the past three years.