Turkey Always had Control of its Economy
A Letter to the Editor
By Carlo Cottarelli
Assistant Director, European I Department
International Monetary Fund
June 5, 2001
Professor Boratav's criticism of the response to the Turkish crisis ("Blaming Turkey for the crisis preserves IMF's reputation", May 30) is based on incorrect premises and inaccurate information. His assertion that Turkey had "practically no current account deficit and no problems with external creditors" in 1999 is misleading. The low deficit was the result of a deep recession caused by extremely high domestic interest rates brought on by economic mismanagement and lack of adequate access to international capital markets. High rates also set public finances on an unsustainable path, with public debt rising from 43.5 percent of GNP at end-1998 to 61 percent at end-1999.
The Turkish authorities were initially very effective in implementing the IMF-supported program, but were less successful coping with unexpected events such as the tripling of oil prices, the strong dollar, rising international interest rates, and an overheating economy. The IMF did not fail to alert the authorities that risks were emerging in mid-2000. Indeed, it did so publicly. The completion of the September 2000 program review was delayed on account of insufficient policy adjustment. Moreover, when the monetary framework was tested for the first time in November 2000, key performance criteria under the Fund-supported program were breached substantially—especially net domestic assets of the central bank. This undermined the credibility of the exchange rate regime.
The February 2001 crisis also was preceded by policy slippages, including delays in the approval of critical reforms of banking regulations and the electricity and tobacco markets; an ill-timed measure to facilitate the payment of tax arrears; and unaddressed legislative problems affecting the privatization of Turk Telekom. All of this was compounded by the political blowup that sparked the crisis.
External developments, and the Turkish government's policies and decisions at various key junctures, were crucial to the unfortunate evolution of events; the day-to-day management of the economy was always in the control of the government and never in the hands of the IMF.