IMF Approves US$1.5 Billion Tranche Under Stand-By Credit to Turkey

The Executive Board of the International Monetary Fund (IMF) today approved the eighth review of Turkey's economic program supported by the three-year Stand-By Arrangement. The Board's decision will enable Turkey to draw SDR 1.2 billion (about US$1.5 billion) immediately from the IMF.

The stand-by credit was approved in December 1999 for SDR 2.9 billion (about US$4 billion-see Press release 99/66). In December 2000, SDR 5.8 billion (about US$7 billion) in additional financial resources were made available under the Supplemental Reserve Facility (SRF-see Press Release 00/80). On May 15, 2001, the IMF approved the increase of the stand-by credit by SDR 6.4 billion (about US$8 billion), bringing the total available resources from the IMF to SDR 15 billion (about US$19 billion-see Press Release 01/23). So far, Turkey has drawn a total of SDR 6.9 billion (about US$9 billion) from the IMF.

Following the Executive Board discussion on Turkey, Horst Köhler, Managing Director and Chairman, said:

"The Fund commends the Turkish authorities' strong and comprehensive efforts to implement their strengthened program, and approves completion of the Eighth Review. Much has been achieved to restructure the economy and improve Turkey's economic fundamentals. However, ambiguities regarding the implementation of certain measures have delayed the full benefits of the program. Looking forward, the Fund urges the strongest possible execution of, and unified political leadership behind, the program. This, together with the Fund's full support, is the best avenue for putting Turkey back on the road to low inflation and sustained growth.

"Progress with financial sector reform has been impressive. Decisive steps have been taken to restructure the state banks and intervened private banks, which will contribute to greater stability in money markets and to enhanced governance. The authorities are determined to continue their efforts to ensure that private banks are adequately capitalized, and to respond to any problems in the financial sector with prompt and decisive action.

"Sustained structural reform is key to the improvement of economic prospects and to reducing the role of the state in the economy. Recent measures to enhance governance and fiscal transparency are most welcome and their continued implementation will lend further credibility to the reform effort.

"Greater transparency in the conduct of monetary policy under the program will help market participants in assessing monetary conditions and guide inflationary expectations. Continued achievement of the program's monetary targets will remain important in the period ahead, while the authorities prepare for the adoption of formal inflation targeting as early as feasible. The impact of the public sector wage settlement and of the wheat price decision will have to be closely monitored, and incomes policy strengthened. Overall, full program implementation should help bring interest rates down from their present high levels and ensure the success of the program," Mr. Köhler said.