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By Lucia Mutikani
WASHINGTON, Nov 15 (Reuters) - The International Monetary Fund had not reached an agreement for a new loan deal to help Turkey weather a global credit crisis, but a package was close, Managing Director Dominique Strauss-Kahn said on Saturday.
Strauss-Kahn told a press conference after a G20 summit of leaders here that he had met with the Turkish Prime Minister Tayyip Erdogan on Friday and emphasized that the country's situation required attention.
"We still have some disagreement on the size of their adjustment, the consequences of the adjustment which is needed by the Turkish economy, and following that, the size of the package of the program that the Fund may finance," he said.
"But I am confident that rather rapidly, it will be possible to find an agreement to stabilize the situation in Turkey. Turkey is a great economy with great prospects."
Turkey and the IMF have been locked in negotiations for fresh funding after the country's $10 billion standby deal expired in May, but disagreement, among other issues, over spending by municipalities has hampered progress.
Prime Minister Erdogan has said the government does not want to sign a new loan accord if the IMF program exerted excessive constraints on budget spending, taxes, economic growth and public investments.
Turkey's business community has been pressing for loan deal as a precautionary standby agreement to help limit the fallout from the global financial crisis that has forced Ukraine, Hungary, Iceland and Serbia to seek IMF financial aid.
Strauss-Kahn noted that Turkey had been affected by the drying up of capital inflows as a result of the global credit crisis, that had seen foreign investors selling their assets -- mostly in emerging markets -- and sending the money to Japan and the United States.
IMF WARNING
That led to a sharp depreciation of currencies whose countries are saddled with huge current account deficits, including the Turkish lira.
"The drying up of capital inflows has a lot of different results especially on those countries which were attracting a lot of investment. We need to help them to get out of this bad situation. That's the core discussion we had."
Turkish authorities have said there was no disagreement with the IMF on the level of public investments and a government decision to cut a social security premium paid by employers by 5 percentage points.
Turkey will hold local elections next March and the IMF warned the authorities against increased spending for municipalities as Turkey's financial markets have been hit severely by the global financial markets.
Turkey's foreign exchange reserves are around $72 billion, according to latest data.
First Deputy Managing Director John Lipsky said: "The Turkish economy is one with great prospects and a great future and we have to ensure that future is realized."
Meanwhile, Strauss-Kahn said, an agreement had been reached with Iceland, with the deal to be signed next Wednesday.
"We will complete a program with Iceland next Wednesday. We now have an agreement for an external arrangement," he said.
"We are discussing with a couple of other countries and I hope the number of countries will not be too high because it reflects the problems of our membership." (Additional reporting by Alister Bull; Editing by Eric Walsh)