August 3, 2001
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The Executive Board of the International Monetary Fund (IMF) today completed the ninth 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 arrangement 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 8.1 billion (about US$10 billion) from the IMF.
Following the Executive Board discussion on Turkey, Stanley Fischer, First Deputy Managing Director, and Acting Chairman, said:
"Executive Directors commended the Turkish authorities on the strong implementation of their ambitious economic reform program. Major progress has already been achieved in restructuring the banking sector, improving budget transparency, and preparing the privatization of state-owned enterprises. Together with a strong macroeconomic framework, these measures are creating the basis for a lasting reduction in inflation and a dynamic economy generating sustainable growth.
"There are encouraging signs that the economic downturn is bottoming out, and that the targeted lowering of inflation is materializing, which could permit declines in interest rates. Directors noted the importance of declining interest rates for supporting the economic recovery and helping ensure that the Treasury's rollover requirements in the months ahead are met. The government's recent efforts to demonstrate full and united support for the program, and greater consistency in its communications, are welcome steps toward restoring confidence. The Fund looks forward to further efforts in the months ahead to communicate more effectively to investors and other observers the program's basic strategy, namely to achieve government debt sustainability through major budget adjustment, strong supply-oriented policies, and exceptionally large financial support from the Fund and other lenders.
"Ensuring public debt sustainability makes the preservation of a significant primary budget surplus indispensable. The authorities' determination to persevere with fiscal adjustment, notwithstanding the larger-than-expected economic downturn, is therefore welcome. The measures to enhance the demand for government paper introduced on July 26 should help secure the government funding needed in the period immediately ahead, and are a useful complement to the more fundamental economic reforms implemented under the program.
"The authorities have decided to adopt inflation targeting in the fourth quarter, which will strengthen and lend much-needed clarity to the monetary framework. In addition, the pre-announcement of foreign exchange auctions should help ease market uncertainty.
"The authorities have also made considerable progress in their ambitious structural reform agenda, especially in restructuring the banking system. Although recognizing the risks that remain, Directors noted the many achievements of the reform program, as well as the authorities' increased commitment to program policies. Directors encouraged the authorities to build on this commitment through strict implementation of the program and, by completing the review, offered their strong support to the pursuit of this ambitious goal," Mr. Fischer said.
