## Press Release: IMF Managing Director Sees Impressive Commitment by Turkey to Economic Reforms; Executive Board Approves US$16 Billion Stand-By Credit

_IMF News, February 4, 2002_

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## Bibliographic details
- Authors: Credit Press Release No.
- Published: February 4, 2002

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### IMF approval and financial terms
- Executive Board approved a three-year, SDR 12.8 billion (about US$16 billion) stand-by credit for Turkey to support the government's economic program for 2002-2004.
- This decision enables Turkey to draw SDR 7.3 billion (about US$9 billion) from the IMF immediately.
- The arrangement replaces the previous stand-by credit approved in December 1999 (Press Release No. 99/66) which amounted to SDR 15 billion (about US$19 billion).
- Total disbursements to Turkey under the previous stand-by credit came to SDR 11.7 billion (about US$15 billion); the remaining undisbursed SDR 3.3 billion (about US$4 billion) were folded into the new arrangement and are included in the total amount.

### Managing Director Horst Köhler — key assessment and recommendations
- Commended Turkey's success in developing and implementing a bold and comprehensive economic reform program; described progress as "impressive" and affirmed the authorities' commitment to economic and financial recovery through continued steadfast policy implementation.
- Noted achievements:
  - Move to a floating exchange rate regime.
  - Clear course toward debt sustainability through a greatly improved fiscal position.
  - Important progress in banking sector restructuring, public sector reform, and preparations for privatization.
- Policy priorities and recommendations:
  - Flawless implementation of the reform agenda to improve prospects for economic recovery, disinflation, and debt sustainability.
  - Complete operational restructuring and privatization of state banks; finalize legal and regulatory framework for private bank recapitalization.
  - Pursue planned reduction in public sector employment vigorously while minimizing social costs.
  - Further improve public procurement, overhaul the tax system, reform public sector employment, and consolidate budget institutions.
  - Central bank to adhere strictly to its base money targets and finalize preparations for transition to formal inflation targeting.
  - Strengthen regulatory and supervisory frameworks and establish institutional capabilities to resolve assets taken over by the Savings Deposit Insurance Fund (SDIF).
- Concluded that continued strong implementation and renewed political unity justify the Fund's exceptional support to Turkey's reform agenda.

### Annex — Recent developments (late 2001 to January 2002)
- September 11 events produced exogenous shock affecting exports, tourism, access to international financial markets, privatization, and foreign direct investment.
- Resulting strains: large increases in domestic interest rates in September-October 2001.
- By November 2001, Turkey faced an external financing gap of US$10 billion for 2002, with gaps of US$1 billion in each of 2003 and 2004.
- Market sentiment improved with prospects of a strengthened program supported by additional external financing:
  - Turkish lira appreciated by more than 10 percent against the U.S. dollar in January, bringing cumulative appreciation since mid-October 2001 to more than 20 percent.
  - Interest rate on the benchmark bond fell by more than 20 percentage points (to around 70 percent at end-January).
  - Stock market rose more than 80 percent from its post-September 11 low.

### Program summary — objectives and structure (2002–2004)
- Program aims:
  - Protect the economy against future crises while laying the basis for sustained economic growth.
  - Reduce risk of future crises via: continuation of the floating exchange rate regime; financial system reform and strengthening; and expenditure and tax reforms to sustain medium-term fiscal adjustment and ensure debt sustainability.
- Macroeconomic framework and targets:
  - 2002 GNP projected to grow by 3 percent with upside potential given the depth of the 2001 recession.
  - Authorities committed to reach the CPI inflation target of 35 percent in 2002, from 68.5 percent in December 2001.
  - Government intends to maintain the public sector primary surplus in 2002 at the level of 6.5 percent of GNP.
  - Current account expected to move from a surplus of about US$2 billion in 2001 to a deficit of a similar magnitude in 2002.
  - Capital account deficit projected at US$3 billion in 2002, compared with US$13 billion in 2001.
  - Conditional statement: Provided interest rates converge to program levels and the primary surplus remains strong, Turkey's public debt would be sustainable in the medium term and shift to a declining trend relative to GNP.
- Fiscal policy and debt management:
  - Parliament passed a central government budget consistent with achieving a public sector primary surplus of 6.5 percent of GNP in 2002.
  - Authorities started implementing measures to enhance revenues and rationalize expenditures.
  - Plans to offer securities matched to investor needs; widen investor base; lengthen maturity of government debt; deepen liquidity of benchmark issues.
- Monetary policy:
  - Goal to lower inflation and prepare for successful inflation targeting; improving financial market conditions and stabilizing exchange rate expected to rebuild confidence and free monetary policy to target inflation.
- Structural reform priorities:
  - Banking sector: restore credit flows, enforce rigorous loan portfolio valuation, offer limited public support for private bank recapitalization, resolve large amount of SDIF assets, strengthen regulatory/supervisory frameworks.
  - Public sector: sustain fiscal adjustment, enhance fiscal transparency, reform tax system, consolidate fiscal activities into fewer institutions, enhance social protection to cushion retrenchment impacts.
  - Private sector: revitalize privatization in 2002, foster greater foreign direct investment, improve transparency and governance, and enhance communication of program aims.

### Turkey: Selected Indicators, 1999–2004 (selected figures preserved exactly as in source)
- Real sector (in percent)
  - Real GNP growth rate: 1999 -6.1; 2000 6.3; 2001 -8.5; 2002 3.0; 2003 5.0; 2004 (blank in source)
  - GNP deflator: 1999 55.8; 2000 50.9; 2001 60.7; 2002 48.9; 2003 24.9; 2004 13.1
  - WPI (12-month, end-of-period): 1999 62.9; 2000 32.7; 2001 88.6; 2002 31.0; 2003 16.2; 2004 12.0
  - CPI (12-month, end-of period): 1999 68.8; 2000 39.0; 2001 68.5; 2002 35.0; 2003 20.0
  - Average nominal treasury bill interest rate: 1999 106.2; 2000 38.0; 2001 99.7; 2002 69.6; 2003 46.0; 2004 32.4
  - Average ex-ante real interest rate 1/: 1999 32.0; 2000 -9.4; 2001 33.2; 2002 27.5; 2003 20.5
- Central government budget (in percent of GNP)
  - Primary balance 2/: 1999 1.5; 2000 4.2; 2001 5.4; 2002 5.6
  - Net interest payments 3/: 1999 15.8; 2000 23.2; 2001 13.5
  - Overall balance: 1999 -11.6; 2000 -18.2; 2001 -15.2; 2002 -10.6; 2003 -7.8
- Consolidated public sector (in percent of GNP)
  - Primary balance: 1999 -2.0; 2000 2.3; 2001 5.7; 2002 6.5
  - Net interest payments 4/: 1999 22.1; 2000 21.9; 2001 24.7; 2002 18.4; 2003 13.3
  - PSBR (including CBT profits): 1999 24.2; 2000 19.6; 2001 19.0; 2002 11.9; 2003 9.3; 2004 6.8
  - Net debt of public sector: 1999 61.0; 2000 57.4; 2001 92.2; 2002 81.3; 2003 73.3; 2004 69.4
  - Net external: 1999 20.1; 2000 18.3; 2001 35.1; 2002 30.6; 2003 28.5; 2004 (blank)
  - Net domestic: 1999 40.9; 2000 39.1; 2001 54.2; 2002 46.2; 2003 42.7
  - Central government (gross) (example item listed): 42.5; 70.3; auctioned and other cash debt: 25.8; 23.4; 25.3; 23.1; bank recapitalization: 17.4; 35.6; 28.4
- External sector (in percent)
  - Current account balance: 1999 -0.7; 2000 -4.9; 2001 1.3; 2002 -1.2
  - Gross external debt: 1999 55.0; 2000 56.6; 2001 75.4; 2002 71.7; 2003 66.7; 2004 63.3
  - Net external debt: 1999 34.0; 2000 37.0; 2001 51.6; 2002 48.1; 2003 44.4; 2004 40.8
  - Short-term external debt (by remaining maturity): 1999 20.8; 2000 23.0; 2001 23.3; 2002 20.4
- Monetary aggregates and other indicators
  - Seignorage 5/: 1999 3.2; 2000 1.8; 2001 1.0; 2002 0.7
  - Nominal growth of broad liquidity (in percent): 1999 96.9; 2000 40.2; 2001 75.1; 2002 27.4; 2003 17.1
- In billions of U.S. dollars (selected)
  - Privatization proceeds: 1999 0.1; 2000 3.3; 2001 2.8; 2002 2.5
  - Net external financing of central government: 1999 1.4; 2000 4.1; 2001 -2.7; 2002 -1.0
  - Amortization: 1999 6.0; 2000 6.2; 2001 8.2; 2002 8.4; 2003 8.0
  - Gross borrowing: 1999 7.4; 2000 10.3; 2001 5.5; 2002 7.5; 2003 7.0
  - Of which: Eurobond issues: 1999 2.2; 2000 4.5; 2001 4.7
  - GNP: 1999 187.4; 2000 201.3; 2001 150.3; 2002 165.6; 2003 183.0
  - GNP (in quadrillions of Turkish lira): 1999 78.3; 2000 125.6; 2001 184.7; 2002 283.2; 2003 371.6; 2004 441.3

*Press Release No. 02/7, February 4, 2002.*

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## References

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_Source: https://www.imf.org/en/news/articles/2015/09/14/01/49/pr0207_