Turkey and the IMF
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Transcript of a Conference Call on Turkey
MS. STANKOVA: Good afternoon, everyone. I'm Olga Stankova, a press officer with the External Relations Department at the IMF, and this is a press briefing conveying the Board decision on Turkey. The briefing will be conducted by European Department I Director Mr. Michael Deppler. The briefing is on the record. The briefing is embargoed until about 15 minutes after conclusion, and we'll set the precise time at that point. For better hearing, I would ask you to mute your phones when you are not speaking.
Mr. Deppler will be speaking for about five minutes, after which we will open the floor for questions, and I will moderate the Q&A session. Mr. Deppler, please.
MR. DEPPLER: Thank you.
The basic message is that the Board approved the completion of the third review during the Board meeting this morning. The implication of that is that Turkey can draw another $1.15 billion under its arrangement with the Fund, a $16.3 billion arrangement, of which now $12.7 billion have been disbursed this year.
The basic view in the Board this morning was, first of all, that the authorities continued with their very strong implementation of the program, and that the program remains essentially on track. Indeed, the program had generated some quite promising out-turns during the first half, both in terms of economic activity, inflation, the balance of payments, and also in terms of debt sustainability, at least through April, when both interest rates and the access to markets was quite strong.
More recently, of course, the political developments have unsettled financial markets and led to a rise in interest rates.
The Board, nonetheless, took the view that the program remained on track, saw scope for interest rates to come back down after the elections, and all of this to result in a reversal of the interest rate developments.
Indeed, in that context, Directors notes that the decision on the election and the decision on the EU laws last Saturday had led to interest rates moving back about 10 points from their highs in July.
I guess the other main point is that Directors noted that there's widespread domestic political support for the program in Turkey, not in terms of every detail maybe, but certainly in terms of sort of support for the thrust of the program. In that perspective, Directors took the view that the program would remain on course and that it could withstand the political uncertainty of the present and completed the review.
By the same token, they saw a need to continue the strong implementation of the program, notably on the fiscal side, which was viewed as absolutely key to consolidating the sustainability of the debt position.
Another major element there was while Directors recognized the fact that legislation would be interrupted by the election, they emphasized the importance of continuing with the fiscal reforms which were needed in order to give long-lasting and long-term sustainability to the fiscal position. And they urged the authorities in line with their commitments to push forward with the reform efforts.
On the central bank, Directors were very positive on the reduction in inflation and the management of the exchange rate, and very pleased with the floating exchange rate regime and the role of the central bank.
They were also impressed by the progress on financial sector reform where things have been difficult but well handled. But, again, there's a need to press ahead on some of the remaining issues, notably the disposition of the assets of the SDIF from the intervened banks and preparing the state banks for privatization next year.
Privatization is another area where the Board encouraged the authorities to accelerate their efforts. Both looking to the fall, they noted the improvement in the sales that have been taking place recently, but encouraged intensification of their efforts looking forward.
Overall, the view was that the program has been implemented as agreed and has shown its potential to deliver strong economic performance. Therefore, in light of the consensus behind the program, they saw the solution in terms of a) a clarification of the political situation, but, b) sticking to the program both in the next few months and beyond, and fully expected that this would deliver the strong growth that we're all looking for in Turkey.
I think that's about it, and I would be glad to answer any questions.
MS. STANKOVA: Mr. Deppler, thank you.
We'll now open the floor for questions. Please identify yourselves and your affiliation when you ask questions.
QUESTIONER: Mr. Deppler, given the political uncertainty in the coming months before the elections, there is also a next review in October. Will that review process take place? Will there be a review of the program during the election months? Because you mentioned that the legislation will be in recess in that time, and Turkey will not be in a position to meet certain criteria. Would this be a change to the program itself?
And, secondly, are you planning to ask the leaders of major parties to guarantee the commitments to the economic program? Thank you.
MR. DEPPLER: In terms of the next review, the intention is to proceed on a business-as-usual basis; a mission will go out in October to review developments under the program, and, the usual procedures associated with a review, which is assess performance under the program, the conditionality to date, and what the prospects are for those policies to be sustained looking forward.
So far as the issues arise strictly with respect to the legislative aspects of the program, I don't think this would be an issue for the Board. This is the democratic process and the Fund would be keen to respect those processes. The issues, if there are issues, would be with other dimensions of the program.
But the intention is simply to take these things one step at a time and for the mission to go out in October to review the situation and come to a judgment. We just have to see where we are then. The view of the staff and management but also of the Board is that there is no controversy about the program in general within the electoral and the political circles. And, therefore, we do not see any need to get assurances in this regard. But this is a view that is based on the fact that there doesn't seem to be too much controversy.
This is the reading as of now, and, therefore, we do not see any need for a guarantee, as you put it.
QUESTIONER: Mr. Deppler, you said that the second main point of today's Board meeting is that there is a wide domestic political support to the program, but you said not in every detail. Can you please explain what you meant by "not in every detail" and whether these details that you meant cause any concern to the Board members or not?
MR. DEPPLER: I would be surprised if every political party agreed with every detail because, you know, one can always reasonably disagree on details. But, frankly, I don't have any particular ideas out there as to what these might be.
QUESTIONER: You don't know what details you meant when you said that statement?
MR. DEPPLER: In a political process I would find it difficult to think everybody agreed about everything. And my comment was more in that spirit.
If I'm surprised by something, it's more by the lack of controversy about the program in Turkey today, which is, you know, a rather unique feature in the Fund's experience. And so that would be more the thrust of my comment in that regard.
QUESTIONER: The way you talked about the elections, you sound very confident. It makes me think that the Board is very confident that everything is going to go smoothly.
Are you really confident enough at this point to say that this program is not dependent on the persons and the parties or government? And, more specifically, Minister Dervis is considering to go into politics and to resign probably very soon. Would his removal from the picture change anything for the IMF?
MR. DEPPLER: We cannot be confident about how a political process, an election campaign unfolds. But when we look at the nature of the debate about these issues in Turkey today, we don't see sort of controversy that makes us uneasy about what the nature of the policies of the next government might be. There just doesn't seem to be controversy over the essentials of the program, and that's why in a sense the Board takes comfort in proceeding with this review.
Now, on your question about the role of Mr. Dervis, I should make it clear that we think he has been a very effective architect and spokesman of this program, and he deserves a great deal of credit. But, by the same token, I think it's also true that this has been a cooperative—and he would be the first to say that this has been a cooperative effort of many people, involving the cooperation of many people, and we wouldn't see the program as standing or falling on the basis of one individual.
QUESTIONER: One more question, Mr. Deppler. External events like the war in Iraq or the collapse of Cyprus talks, would those be of major importance for the Turkish economy?
MR. DEPPLER: Cyprus talks is a different matter, but clearly a war in the region would certainly have economic implications for Turkey, which would need to call for incorporation and assessment in the program. But we don't assume those kinds of disturbance.
QUESTIONER: And, by the same token, Mr. Deppler, if the war has a negative impact on Turkey, will there be major difficulty regarding next year's debt rollover? And if there is a major gap, would the IMF again consider some additional funds for Turkey?
MR. DEPPLER: The basic view of the Fund and of the Board is that this program is on a sustainable path. I think we were all very favorably impressed by what happened in the spring.
Now, the developments of the past few months have set us back a bit in terms of issues of debt sustainability and rollover risks. But, in fact, if you look at things from a longer perspective, what you find is that the performance was exceptional in the first and the second quarter.
In terms of the underlying assumptions of the program, things were much more favorable than we expected, and now we're back to catching up with the average, if I may put it that way.
But in terms of the basic tendency of the program, we're on track. This is basically the signal that the Board is sending by completing this review, we are on track because of the authorities' implementation. And as of now, we see no need for changes to the program.
QUESTIONER: If I could just clarify one thing you said, you laid out a schedule that would have an IMF review team go, I think you said in October again.
MR. DEPPLER: Yes.
QUESTIONER: And would that be the next tranche come in October if that team finds things are going as they hope they will be going?
MR. DEPPLER: In relation to the elections, which are on November 3rd, it's pretty close timing. And, you know, reviews typically take some time. But we're certainly scheduling a mission to go in October and will proceed in the light of those developments.
But we're just going to go on a business-as-usual basis and proceed as quickly as we can given the circumstances.
QUESTIONER: I think that answer, if I might follow up, is telling me that the mission will go in October, but that's the business-as-usual, given the fact that the elections are coming November 3rd, any Board discussion may take place after that date. Is that what you're saying?
MR. DEPPLER: Well, it depends on how expeditiously any issues out there are resolved. Under the provisions of the program, the Board discussion cannot be until late October in any case. But whether it's going to be then or after the elections is really a question of what is the situation on the ground in terms of the economics, but also in terms of the outlook for policies going forward at that time.
MS. STANKOVA: No more questions?
MS. STANKOVA: Thank you, everybody. It's now 1:25 pm. The briefing is embargoed until 1:40 pm, 15 minutes after the briefing.
Thank you, everybody.
IMF EXTERNAL RELATIONS DEPARTMENT