* Economy minister Simsek says signs of IMF flexibility
* Simsek says if IMF deal reached, most likely after polls
* Says big changes in tax administration would deepen crisis
* Government sources say tax cuts planned
(Adds comment from PM Erdogan)
By Hatice Aydogdu and Orhan Coskun
ANKARA, March 12 (Reuters) - The International Monetary Fund has started to show flexibility on some subjects in talks with Turkey on a loan accord, Economy Minister Mehmet Simsek said on Thursday, raising hopes of a deal to boost the ailing economy.
Turkey's protracted IMF talks were officially suspended in January due to disagreements over the terms of a loan -- funds seen as necessary as the $750 billion emerging market economy struggles to weather the global economic crisis.
Any deal is now only expected after municipal elections on March 29 in the European Union membership candidate country. In the meantime, a stimulus package is planned to revive demand, government sources told Reuters on Thursday.
"A programme will be created if a path can be agreed with the IMF. If everything is not agreed immediately it will probably be after the elections," Simsek said in an interview with broadcaster CNN Turk.
Turkish financial markets and business leaders, worried about the economic outlook, are clamouring for a new loan deal to replace the $10 billion accord which expired last May. But Prime Minister Tayyip Erdogan launched an attack on doomsayers on Thursday for undermining public confidence in the outlook.
"There are some who continously demoralise people as if the source of this crisis is Turkey. Those who harm the psychology of people are committing treason against the country," he told an election rally for his ruling AK Party in southern Turkey.
The IMF has been pushing for tighter spending, while the government fears reduced spending will exacerbate unemployment, already at a 5-year high above 12 percent, and it seeks more flexible fiscal policies to stimulate growth.
Turkey's economy, which has boomed in the years since a 2001 financial crisis, began slowing sharply last year and is believed to be heading towards recession in 2009 as domestic and export demand slump.
Shares fell 2.3 percent and the lira shed up to 2 percent to the dollar on Thursday after Turkey's biggest steelmaker Erdemir posted a fourth-quarter loss of 1.2 billion lira ($680 million). The lira rebounded after Simsek's comments.
TAX ADMINISTRATION CONCERNS
Turkey has balked at demands by the IMF to give autonomous status to the country's tax administration, to press taxpayers to declare the source of their incomes and to cancel a law for transferring funds to the municipalities.
Radical changes in the tax administration would deepen the crisis as it would discourage the flow of funds, said Simsek, who was due to fly to Britain later in the day for the G-20 summit.
However, Treasury data on Thursday showed net international direct investment including real estate held up in January, dipping just 3.3 percent year-on-year to $1.09 billion.
Simsek added that Turkey was working on a new mechanism to encourage bank lending and would announce it in a few weeks, and that the ratio between debt and national income would increase in 2009.
The Central Bank has cut its key borrowing rate by 525 basis points since November to 11.50 percent and more cuts are expected as it looks to encourage economic activity.
The extent of the slowdown in the Turkish economy was illustrated by data this week showing industrial production had slumped by more than 20 percent year-on-year in January, which helped send the lira to a record low against the dollar.
Government sources told Reuters Turkey planned to cut value-added tax and special consumption tax in the automotive, construction and textile sectors for two to three months to encourage domestic consumption.
The stimulus package is expected to be completed next week, the sources said.
The automotive sector has stood out among hardest hit sectors during the current slowdown. Industry data this week showled automotive output and exports slumped more than 60 percent year-on-year in the first two months of 2009.
In a bid to boost exports, Turkey also plans to increase the capital of the country's Eximbank to 2 billion lira from 1.5 billion lira, the government sources said. However, cuts in income and corporate tax are not currently on the agenda. (Writing by Daren Butler, Editing by Ron Askew and Andy Bruce)