* IMF wielding more stick in E.Europe as crisis eases
* Has more leverage on Latvia, Serbia, Bosnia on reforms
* Ukraine politics require more leniency
* Turkey to to clinch deal unless global markets worsen
By Michael Winfrey
PRAGUE, June 30 (Reuters) - A break in the economic turmoil
in emerging Europe has let the International Monetary Fund wield
more stick on its demands for belt-tightening and shift away
from the more merciful line it took at the start of the crisis.
Cautious to avoid the political upheaval that marred the
Asian and Argentina crises, the IMF initially focused on getting
cash to countries near the brink of bankruptcy like Hungary and
Latvia with a view of containing a wider meltdown.
But now that the threat of immediate regional collapse has
receded and markets have stabilised, the Fund has taken a
country-specific tack and is leaning on bailout recipients it
sees more likely to tackle belt-tightening reforms.
Analysts said the result would be a patchwork of deals where
the neediest will buckle down on public sector deficits.
But those with factors like other financing options or
political constellations resistant to outside pressure will
either get leniency or forgo deals altogether.
That means the Washington-based lender of last resort will
hold back agreed loan tranches from the likes of Serbia and
Latvia if they do not tame their public deficits, but Ukraine is
likely to get a pass until its January presidential vote.
"Why is it coming through? Probably because the global
environment is better, allowing the IMF to focus on country-
specific challenges, and therefore allowing them to call on
different countries to do what they need to do," said Koon Chow,
a strategist at Barclays Capital.
"By the same token, there is a little inconsistency with the
IMF, seen in the treatment of, say, Latvia versus Ukraine."
Turkey, without a serious fiscal or financing crisis, will
most likely forego any deal unless a reversal in the global
market rally slams shut its alternative route to funds.
TURNING THE SCREW
Backed by a tripling of its lendable resources to $750
billion, the Fund threw lifelines to sinking central and Eastern
European states last year, saying the priority was to stem the
economic collapse and nurture recovery.
In that spirit, it let Hungary and Latvia overshoot agreed
budget deficit ceilings when their economies showed they would
contract by a worse-than expected 6 and 18 percent this year.
But as the threat of crisis eases and lending revives the
Fund has demanded bailout recipients stabilise finances.
The EU gave a green light to Latvia last week for a 1.2
billion euro tranche of aid, but the IMF has held back judgement
on whether cuts -- 20 percent to state salaries and 10 percent
to pensions -- have been enough for it to release more funds.
It also froze a loan tranche to Serbia until it brings
public sector deficit under control, and it held off approving a
1.2 billion euro loan for Bosnia.
And on Tuesday, it reminded Hungary of its pledge to cut its
budget deficit next year.
"The IMF has been much more lenient this time, and that
argument still holds," said Neil Shearing of Capital Economics.
"But there can't be this huge moral hazard involved, the IMF
just doling out money and not expecting anything in return... It
has to put these countries back on a sustainable footing."
The approach is not always smooth. Serbia has said it will
explore other funding routes to avoid cutting spending.
And last week Bosnia's Muslim-Croat part reversed plans to
slash benefits for its veterans of the 1992-1995 war. But the
federation's finance minister said the IMF was the only option.
UKRAINE, TURKEY MORE DIFFICULT
The Fund held back a tranche for Ukraine this year when a
long-running dispute between President Viktor Yushchenko and
Prime Minister Yulia Tymoshenko paralysed economic reforms.
But it has since been more placating, and analysts say it
may now be looking at a longer-term strategy, unlike in Serbia.
"I think geopolitical factors come into mind," said Timothy
Ash, head of CEEMEA research for bank RBS. Plus also I think
there is a feeling that perhaps the policy making environment is
a bit more robust, i.e. the Serbian government is somewhat more
credible on the policy front."
Turkey is a more complicated case. Prime Minister Tayyip
Edorgan has tapped patriotic support around his a stance that
Turkey no longer needs help from the IMF to run its economy
since its last $10 billion accord expired in May.
And even though he has said Turkey is "very close to a
deal", analysts said that, barring a worsening of the global
outlook, Ankara is likely to agree to one only if it does not
have harsh conditions.
"Turkey is pushing for as limited a conditionality as
possible," said Martin Blum, head of EEMEA Markets research at
Unicredit. "And from that sense, if the global backdrop is okay,
then the onus is on the IMF to water down its demands as opposed
to Turkey improving its fiscal account."
(Additional reporting by Gordana Filipovic in Belgrade;
editing by Chris Pizzey)
