Nov. 20 (Bloomberg) -- Turkey and the International Monetary Fund may sign a loan agreement of $20 billion to $40 billion, a ruling party official said, helping the lira recover from its weakest level in more than a year.

The country is ``close to an agreement on an IMF program,'' Bulent Gedikli, economy chief for the ruling Justice and Development Party, said by telephone from Ankara today. Prime Minister Recep Tayyip Erdogan gave details of the possible accord in a meeting of the party's leadership yesterday, Gedikli said.

An IMF agreement, the fourth time the republic has turned to the lender for support in a decade, would help Turkey's economy withstand the global financial crisis, which is sending investors fleeing from riskier emerging market assets. Turkey may follow Iceland, Ukraine and Hungary in winning IMF aid.

``Everybody is expecting an imminent agreement,'' said Yarkin Cebeci, an economist for JPMorgan Chase & Co. in Istanbul. ``The more we wait, the more pressure will build on the lira and the government.''

The lira gained against the dollar, snapping a three-day decline. The currency climbed as much as 1.8 percent to 1.7006 per dollar and was at 1.7129 at 4:52 p.m. in Istanbul. It earlier slipped to 1.7488, the lowest level since June 2006.

Erdogan told the party leadership yesterday that talks this week with the IMF in Washington had made progress, though there were still some disagreements over the budget, Gedikli said. He didn't say if the accord would provide automatic lending or only make it available at times of great need, a so-called ``precautionary'' accord, Gedikli added.

$10 Billion Accord

Turkey has been negotiating with the fund since May on a possible follow-up to a $10 billion accord. Turkey says changes enacted under previous IMF support packages have made its economy more resistant to crises.

The two sides are still negotiating the details of a possible accord and no amount has been set, Erdogan said in televised comments today. He said he was ``hopeful'' that an agreement can be reached.

``It's positive that Turkey is coming back on track after all the uncertainties of the past few months,'' said Jean-Dominique Butikofer, who helps manage $300 million as head of emerging-market debt at Union Bancaire Privee in Zurich.

The currency slid late yesterday after the Turkish central bank unexpectedly cut its benchmark interest rate to 16.25 percent from 16.75 percent. All 20 economists surveyed by Bloomberg had forecast rates would be left unchanged.

The main ISE National 100 Index of shares extended yesterday's 6.7 percent drop, declining 3.2 percent to 21,228.27, at the end of trading today.

Credibility at Stake

The interest rate reduction may show that the bank ``knows more than the market and is anticipating a strong IMF program to fall into place in the coming weeks,'' Ahmet Akarli, an economist at Goldman Sachs in London, said in a note to investors today. ``If not, then the CBRT may be putting its credibility at stake.''

Turkey and the IMF are still negotiating and it's ``far too early'' to discuss the timing or size of any accord, Economy Minister Mehmet Simsek told reporters in Ankara today.

Turkey needs IMF assistance because it has about $100 billion of external debt falling due over the next 12 months, according to estimates from economists including Christian Keller of Barclays Capital in London. That compares with central bank reserves of $70.5 billion on Nov. 7.

Simsek declined to comment on Turkey's financing needs, saying that the ability of the government and companies to roll over their debts ``depends entirely on market conditions.''

Foreign Currency

The global credit crisis has restricted inflows of foreign money that Turkey has relied on to finance economic growth, which averaged just under 7 percent for the past six years. Foreign direct investment in the first nine months of the year was $12.3 billion, 28 percent less than in the same period of 2007, the central bank said on Nov. 12.

The slowing inflows raise concern about the ability of Turkish companies to finance foreign exchange debts that exceeded their assets by $81.4 billion at the end of June, according to central bank data.

Turkey still owes the fund about $8.5 billion from the earlier arrangement, according to IMF data from Oct. 31. Since 1961 Turkey has begun 19 IMF loan accords. Erdogan's government has completed two, meeting all the criteria and winning all the lending available. No other government has finished one.

To contact the reporters on this story: Steve Bryant in Ankara at sbryant5@bloomberg.net; Ali Berat Meric in Ankara at

Last Updated: November 20, 2008 10:19 EST