Turkey is close to agreeing a deal with the International Monetary Fund (IMF) that would allow it to draw up to $40 billion (£27 billion) in funds if needed to help the country to combat the global credit crisis.

Although Turkey is not under the same financial strain as countries such as Iceland, whose economies have virtually collapsed as a result of the financial crisis, it has nonetheless seen a sharp slowdown in its economy and currency. Ahmet Akarli, a Goldman Sachs analyst, said that an IMF programme would be positive because it would help to bring policy discipline and enhance credibility, acting as an important stabilising force as Turkey tackles the looming global recession.

Tayyip Erdogan, the Turkish Prime Minister, said that the exact size of the IMF loan had yet to be determined, but said he hoped to have a deal finalised next week.

Meanwhile, Latvia said yesterday that it was in talks with the IMF and the European Union over a rescue package, becoming the second EU member after Hungary to seek help after sliding into recession and being forced to nationalise its second-largest bank. It followed weeks of speculation from analysts that Latvia and its Baltic neighbours, heavily exposed to foreign borrowing, could seek IMF help to avoid economic ruin, following Hungary and Ukraine in October and Serbia this month. Lithuania and Estonia said that they saw no need for funds.

Separately, the British Government welcomed news of the finalisation of the IMF's $10 billion bailout package to Iceland, which was completed yesterday after Denmark, Finland, Norway and Sweden agreed to provide a $2.5 billion loan.

Last month the British Government and the Financial Services Compensation Scheme (FSCS) said that all savers would be repaid in full after the collapse of Landsbanki, the owner of Icesave, meaning that UK taxpayers had to cover the first £16,000 of each account. The £2.2 billion bill for this counts towards the IMF bailout as a an effective loan to Iceland.

The FSCS will repay any further savings up to the usual threshold of £50,000 at a cost of £1.4 billion, with the Government covering amounts above this threshold. The total cost to the Treasury of compensating savers for sums above £50,000 is £800 million. The Government said that it hoped to recover this sum, alongside charities and local government agencies that lost their deposits, when Landsbanki is broken up and sold.

Iceland is the most visible victim of the crisis because it was so highly leveraged, with the banks of a country of only 320,000 people owing more than $60 billion in foreign debts. The crisis has forced down its currency, pushing three of its biggest banks to collapse and melting down its financial system.

John Lipsky, the IMF's first deputy managing director, said: “Iceland is in the midst of a banking crisis of extra-ordinary proportions.”

The IMF forecasts that Iceland will suffer a 9.6 per cent decline in its GDP next year, as the unemployment rate quadruples to 5.7 per cent. The economy will be in serious recession until 2010, the IMF said.

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