Press Release No. 03/118

Press Release: IMF Mission Concludes Discussions for the Fifth Review of Turkey's Stand-by Arrangement

July 21, 2003

July 20, 2003

An IMF mission team, headed by Reza Moghadam, has completed its discussions for the fifth review under Turkey's stand-by arrangement with the Fund. The fifth review discussions had begun in May during an earlier visit by the IMF team (see Press Release No. 03/78). The Fund stand-by arrangement supporting Turkey's economic program covers 2002-04. Of the total Fund financing of US$17½ billion, about US$3 billion remains to be disbursed. Completion of the review would trigger a disbursement of about US$500 million.

The government and the mission have reached agreement on the policy actions needed to complete the review. This agreement is subject to approval by IMF management and, subsequently, the IMF Executive Board.

The discussions focused mainly on two key areas: achieving 6½ percent of GDP primary surplus in 2003, and advancing the government's structural reform agenda:

• The government has now identified the measures needed to safeguard the public sector primary surplus target of 6½ percent of GNP for 2003. Implementation of these measures will help ensure debt sustainability, and facilitate further reductions in government bond rates.



• The government is also accelerating a number of structural reforms, including the passage of bankruptcy reform and social security legislation, strengthening the collection of social security arrears, and preparing a comprehensive framework that will strengthen the preparation, execution and control of the government budget.

The macroeconomic environment continues to improve. All monetary targets for end-April and end-June were met, and the fiscal targets for end-April were also met. Economic growth in the first quarter exceeded 7 percent, suggesting that the government's 5 percent real GNP growth projection is readily achievable. In June, consumer prices actually fell, bringing the 20 percent inflation target for 2003 well within reach. With inflation expectations falling, and the government showing its commitment to fiscal discipline and structural reform, the Central Bank of Turkey has been able to cut its short-term interest rate. Continued strong policy implementation by the government should allow government bond yields to fall too.

Implementation of the agreed measures would pave the way for the IMF Executive Board to consider the fifth review. The meeting could take place ahead of, or just after, the Board's annual recess (the recess starts on August 4 and ends on August 15).