(Adds quote, source comments on inflation forecast)
By Hatice Aydogdu and Orhan Coskun
ANKARA, Dec 5 (Reuters) - Turkey is expected to seek a loan agreement with the International Monetary Fund amounting to $25 billion and it may take the form of an 18-month stand-by deal, government sources told Reuters on Friday.
They said gross domestic product growth was expected to be flat in 2009, while inflation was seen around 14-15 percent, according to estimates drawn up by the IMF and Turkey in ongoing talks.
Turkish business leaders and investors have been calling for a loan accord with the Fund to boost the Turkish economy, which has slowed sharply this year while its markets have been battered by fallout from the global financial crisis.
IMF support has helped Turkey recover from a financial crisis in 2001 and economic growth since then has been at around 7 percent a year. Turkey's previous $10 billion stand-by accord expired in May.
Economy Minister Mehmet Simsek said on Friday Turkey had "more or less" agreed on the steps needed for a loan agreement with the IMF and would apply for a deal once ongoing talks between Turkey and the Fund are completed.
An IMF team is expected to visit Turkey after a religious holiday on Dec 8-11, according to state-run Anatolian news agency.
"An 18-month stand-by agreement with the IMF is envisaged, although that is not definite. Then if the market conditions improve it could be transformed inot a provisional stand-by accord," one of the sources said.
Simsek earlier declined to say whether the talks were for a stand-by accord carrying stringent conditions and giving Ankara automatic access to IMF funds or the more flexible precautionary deal, previously favoured by the ruling AK Party, which would grant funds only if required.
"Talks with the IMF are continuing with an eye on our country's interests and with the aim of minimising the negative effects of the contraction in the global credit market in our country and make the foreign financing balance outlook stronger," Simsek told a news conference.
The government sources said they shared analysts' view that the inflation forecast of 14-15 percent was high, but they said it reflected several factors.
"In making this calculation the IMF is supposing primarily that a VAT increase will be included in the package of measures. Also inflation in Turkey is sensitive to the exchange rate," one source said.
The source said a third factor was the expected impact of funds injected into markets by central banks and governments around the world.
The lira, which eased to 1.5830 against the dollar on Friday, has lost as much as a third of its value during the crisis. Shares were two percent lower.
Illustrating the slowdown, data on Friday showed industrial production tumbled 8.5 percent year-on-year in October while capacity utilisation dropped 9.7 percentage points year-on-year to 72.9 percent in November.
BUDGET SPENDING CUTS
The government plans to cut budget spending between 8 and 10 billion lira ($5.1-$6.39 billion), the sources said.
The IMF wants Turkey to raise value-added tax to 18 percent on some products from their current level of 8 percent, in order to boost budget revenues. The IMF has made no other tax increase demand from Turkey, the sources said.
The government aims to lower the social security deficit through health spending cuts. Spending cuts would focus on current expenditure items rather than investment spending.
The sources also said the government planned to cut municipality spending, but not in the first quarter of 2009 as the country is scheduled to hold local elections in March.
Prime Minister Tayyip Erdogan said on Thursday that Turkey could seal a loan accord with the IMF by the new year if talks continued at the current pace.
An IMF spokesperson in Washington said on Thursday Turkish authorities had not formally requested an IMF loan programme but discussions on the state of the economy were ongoing.
Simsek said the government expected banks to support the real economy more and that the private sector debt load was manageable. He added that Turkey was in dialogue with many nations on diversification of funding, including swap links. (Writing by Selcuk Gokoluk and Daren Butler; editing by Stephen Nisbet)