Turkey and the IMF
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Transcript of a Teleconference on Turkey
MR. DEPPLER: Good morning, this is Michael Deppler. I just wanted to say, to open up, that the Board meeting completed its review, as you know, yesterday, and the disbursement of somewhat over a billion is going through as we speak.
Basically, the Board took the view that the program is on track. The macro aspects of it especially are doing quite well, but also the structural parts of the program were proceeding as programmed.
There were concerns about remaining risks, particularly on growth, but also in terms of shocks, external shocks, regional shocks, as you might expect, but also concerns about ongoing structural rigidities and weaknesses, and it's in this context that the Board focused very much on the need to focus on the medium-term sustainability aspects of the program to ensure the sources of long-run growth, which are basically are issues of having to do with disinflation and structural reforms.
On disinflation, a number of Directors pointed to the sort of gradual slowing in Turkey's growth performance over the past three or four decades associated with a gradual rise, not so gradual rise in inflation and very much agreed with the focus on disinflation as a source for long-term growth in Turkey.
Allied with that, however, were concerns about pushing the structural reform, pushing the sustainability of the program in banking, privatization, and budgetary reforms of various kinds. It's in this context that the Board emphasized the need for, to quote the press release, "unwavering implementation of the program, with the undivided support of the government coalition."
But in tandem with that view was a view that the program is doing well, that the exchange rates, inflation, reserves, the balance of payments, all of these signs were signs of returning confidence and that things were looking good.
QUESTIONER: Again, coming back to this quotation, "unwavering implementation of the program, with the undivided support of the government coalition is needed," that quotation that you just referred to, can you just tell me more about the concerns that you feel towards the Turkish politicians. I mean, do you have any basis at this time that they will not go through and implement any of these things or has this become part of the IMF's traditions to warn the Turkish politicians beforehand?
MR. DEPPLER: Well, I mean, this line about "unwavering implementation," is longstanding. This is not a new line. It has been there for at least a year, and it has nothing to do with the immediate situation.
We are into a phase of the program where the structural issues loom quite large, as opposed to macro issues. But I would emphasize that structural issues have been there in the past as well, and we have landed on our feet, and we expect that to continue.
QUESTIONER: Together, with the appreciation of the Turkish lira, Turkish banks have again resumed raising their exposures over the last month. Do you think that this will put them in a risky position? Because it somewhat looks like the way resembling their trading just before the prior crisis? And do you think this is enough with the appreciation of the Turkish lira, so it is becoming a problem from this point on?
MR. DEPPLER: Well, this is certainly something that we would watch carefully. As you know, this was one of the sources of the problems in late 2000, but these are matters, the open positions of banks are matters that are subject to strict supervision.
There's always need for more caution in this regard, but the fundamental situation, in terms of the outlook, is one that is reasonably safe, I would say--not safe, but one where the interest rates in Turkey remain fairly high in relation to the outlook for the exchange rate.
QUESTIONER: To go back to the growth issue, does the Board have, at this point, any concerns that the growth rate targeted for this year may not be achieved?
MR. DEPPLER: The staff is fairly clear, and I think the Board would agree, that the risks presently in relation to that growth target are on the downside.
It's clear that the development, the output figures for the fourth quarter of 2001 were weaker than we had projected or counted on, and as a result of this, the estimate of 3 percent for this year is more ambitious than it used to be. But I would emphasize, what is this program about? This program is overwhelmingly about restoring confidence in the first instance, and in the second instance, that increase in confidence is laying the basis for growth in the future.
Now I do think we see the restoration of confidence. This is very much what you see in financial markets, but we are also beginning to see it in some of the consumer expectations, indicators, where it's not exactly a huge turnaround, but things have stabilized, and we do see some grounds for expecting things to improve looking forward.
QUESTIONER: One of the things that I hear when I talk to people in the market is this concern about growth in Turkey and how that Turkey might be falling into a kind of Argentina trap. Is there some thought on your side of trying to get the prime to pump a little bit inside Turkey to overcome this?
MR. DEPPLER: Well, not at all. I think I would refer some of my listeners to the speech of Mr. Bahçeli of a few weeks ago focusing on the errors of the past, with populist formulas for pump priming and using inflation and so forth. He is very much on target. This has been failed policies in Turkey in the past, and what Turkey really needs is a restoration of good fundamentals and confidence. I mean, the weakness last year was because of a crash in confidence that the consumers had, you know, started saving like mad, and now with the return of confidence, we expect sort of a home recovery to start materializing.
Now, in terms of the dynamics of debt sustainability, which is maybe where you're coming from, bear in mind what is overridingly important in those debt-sustainability calculations: It's real interest rates. It's not the growth rate. The real interest rate has halved between now and six/nine months ago. So, in terms of underlying debt sustainability, which is what the program is about, we are miles ahead of where we were.
QUESTIONER: If you think that the 3-percent growth target for this year is somewhat more ambitious than it used to be, when do you see growth ramping up, if you do see a restoration of confidence?
MR. DEPPLER: I definitely see it during this year. The 3-percent figure is a figure for the year as a whole, which, if you understand the arithmetic here, is heavily influenced by developments late in 2001. We clearly foresee growth well in excess of 3 percent during 2002.
QUESTIONER: So, by the end of the year, you think they'll be growing at a 4-percent clip or something like that?
MR. DEPPLER: Yes, fourth quarter over fourth quarter for sure. Don't get too influenced by an annual figure which is influenced by the history.
QUESTIONER: The Prime Minister, a few weeks ago, made some comments saying that the government had given over too much independence or too much of its sovereignty to its independent agencies at the IMF's request. Is this part of the political consideration that you're worried about?
MR. DEPPLER: Turkey is in the midst of a transition into new forms, new institutional structures. There are some changes from the past here and things that need to be sort of incorporated. But the Board, which was very clear on this business, said, moving forward, the integrity and transparency of the Bank recapitalization process and the independence of Turkey's regulatory institutions should be maintained.
QUESTIONER: You mentioned the possible downturn effect by regional shocks. Do you think that's possibly just regional shocks or external shocks are worse than the previous time?
MR. DEPPLER: No, I wouldn't say that. I mean, simply the fact that you read the headlines and you know that the potential for regional shocks is there, but the point we would make is that we are dealing now with a set of policies which are much more resilient to shocks than they used to be. The banking system and the exchange rate, in particular, makes for a much more resilient structure, and so while we sort of have to allow for the possibility of regional shocks, I am not particularly concerned that this would be sort of devastating or anything of that kind, but it's certainly something we need to keep a watch for.
QUESTIONER: What about the downsizing of the public sector, sir; do you think the Turkish Government is dragging its feet a little bit?
MR. DEPPLER: No. Well, you should look at the formulation in the new Letter of Intent. There are undertakings there as to the number of people who will be mostly I think retired from the public service, and we are talking about large numbers. It amounts to something like--I'm not quite sure of this figure--but of the order of 10 percent of the labor force in public enterprises. So we are talking significant numbers.
But as I understand it, the intention is to achieve this through voluntary means, and you know this is an important part of the process of achieving privatization, increasing the efficiency of use of public resources and so forth.
QUESTIONER: Could I ask just where we are in the schedule of things with this $1-billion tranche? Do we go another three months and then there's another review? What's the process going forward?
MR. DEPPLER: The next review is two months from now, in May, and then there is another one in July, and then we move to a quarterly basis after that, to October.
QUESTIONER: Would there be a tranche expected in May and another one in July?
MR. DEPPLER: That's right. What I gave you were the mission dates. They're not the Board dates.
MR. DEPPLER: The Board dates would be about a month later.
QUESTIONER: Okay. Thank you.
MR. DEPPLER: But, yes, there would be another billion in May/June.
[Whereupon, the teleconference was concluded.]
IMF EXTERNAL RELATIONS DEPARTMENT