Moody's, the leading global credit-rating agency, has cautioned Turkey that it may face a recession within one to two years if it delays signing a deal with the International Monetary Fund (IMF).

The senior vice president and lead sovereign analyst of Moody's, Kristin Lindow, who has frequently delivered similar warnings to Turkey on a number of issues such as the current account deficit and increasing market volatility, this time cautioned Turkey over the possible adverse effects of avoiding a deal with the IMF. The government has faced a wave of pressure from the business world and from international institutions to anchor itself with the IMF at least for another four-year term, but it has so far resisted such demands on the grounds that the IMF's strict public spending limitations would do nothing to help protect it from the global economic crisis.

The IMF is asking the government to revise its growth target for 2009 to 2 percent and change its investment plans accordingly. On the other hand, the government believes gearing up state investments during times of crisis, when the private sector curtails its spending, would be the best remedy to prevent a recession. The talks between the IMF and Turkey are continuing at the technical level and, according to officials, it is only a matter of time until a deal is signed with conditions closer to Turkey's demands.

Speaking at the Moody's Second Annual Turkey Credit Risk Conference yesterday, Lindow said the era of strong growth globally is over now and that the best possible growth estimate for Turkey would be 3 percent for 2009. Lindow said a new stand-by deal with the IMF would contribute positively to the Turkish economy, adding that without this deal, a recession was almost unavoidable. Although Turkey has sufficient reserves of foreign currency, this state of affairs won't help find a solution to the real problems of Turkey, she noted, claiming that the real problem is a lack of confidence in the market. Recent analyses have pointed to a serious rise in the need for financing, she explained. She further stated that Turkey urgently needs at least $120 billion to handle the crisis and that the IMF and the World Bank must get involved to help Turkey.