{
  "title": "Public Information Notice: IMF Concludes 2004 Article IV Consultation with Turkey",
  "publication": "IMF News, August 10, 2004",
  "sourceUrl": "https://www.imf.org/en/news/articles/2015/09/28/04/53/pn0487",
  "canonical": "https://www.imf.org/en/news/articles/2015/09/28/04/53/pn0487",
  "overlayPath": "/en/news/articles/2015/09/28/04/53/pn0487/index.md",
  "summary": "Each Public Information Notice contains a background section, a table of selected economic indicators, and an Executive Board assessment.",
  "publishDate": "2004-08-10",
  "sections": [
    {
      "heading": "Background and recent macroeconomic developments",
      "content": "- Collapse of the 2000 exchange rate-based disinflation program and floating of the lira in February 2001 led to:\n  - Banking system heavy losses.\n  - Inflation soared.\n  - Economy contracted by nearly 10 percent.\n  - Public debt climbed to over 90 percent of GNP in 2001, partly owing to the costs of bank restructuring.\n- Subsequent policy response and outcomes:\n  - High primary surpluses, reaching more than 6 percent in 2003, contributed to putting public debt on a sustainable and declining path.\n  - Debt-to-GNP ratio declined to 70 percent in 2003.\n  - Market risk premium on Turkish debt fell significantly.\n  - Adherence to a strict monetary program under the floating exchange rate regime helped establish the Central Bank's credibility and facilitate a dramatic decline in real interest rates.\n  - Real GDP growth: close to 8 percent in 2002 and 6 percent in 2003; projected to grow by at least 5 percent in 2004.\n  - Inflation has fallen to its lowest levels in decades and is on track to reach its annual target of 12 percent in 2004.\n- Remaining vulnerabilities:\n  - Rapid increase in domestic demand and a widening current account deficit.\n  - Large government debt, short maturity, and currency composition as major sources of vulnerability.\n- Policy opportunity:\n  - With a commanding majority in Parliament and no new elections needed for another three years, the government has an opportunity to implement difficult structural reforms."
    },
    {
      "heading": "Executive Board assessment — overarching judgment",
      "content": "- Directors welcomed achievements and commended the authorities for:\n  - Impressive economic performance with macroeconomic conditions at their best in decades.\n  - Strategy of disinflation and rapid debt reduction delivering striking results.\n  - Sustained and rapid growth alongside dramatic reductions in inflation to single digits.\n  - Large primary surpluses reducing government debt ratios and improving market confidence.\n  - Significant reduction in real interest rates, an end to decades of continuous exchange rate depreciation, and markedly improved resilience to shocks.\n- Persisting concerns:\n  - Size of public debt, short maturities, and large foreign currency component increase vulnerability to exchange rate and interest rate shocks.\n  - Need to improve quality of fiscal adjustment and intensify pace of structural reform to sustain achievements and deliver robust medium-term growth."
    },
    {
      "heading": "Short-run challenges and recommended fiscal stance",
      "content": "- Short-run observations:\n  - Domestic demand growth is exceptionally strong and contributing to a widening current account deficit.\n  - Authorities have undertaken measures to dampen domestic demand: tight fiscal policy, exceeding primary surplus targets, reducing tax incentives for certain consumer purchases, and state banks reining in lending.\n  - Repeated increases in minimum wages regretted by Directors, but government sector wage restraint welcomed.\n- Policy recommendations:\n  - Continue to monitor the rising current account deficit carefully.\n  - Save this year's fiscal overperformance at least until the outlook for the current account stabilizes.\n  - Be prepared to tighten fiscal policy further if domestic demand continues to be strong.\n  - Maintain restraint on further large increases in current spending to make room for increased public investment."
    },
    {
      "heading": "Medium-term fiscal and structural priorities",
      "content": "- Central messages:\n  - Continued fiscal consolidation is central to maintaining performance and strengthening medium-term growth prospects.\n  - Resisting calls to relax next year's primary surplus targets is important; relaxing targets risks higher real interest rates that will slow growth.\n  - Continued high primary surpluses in a predictable medium-term framework will help meet considerable public debt repayments and strengthen market confidence.\n- Structural and fiscal-reform measures urged:\n  - Reform of the social security system, which remains in large deficit despite high contribution rates.\n  - Reform of tax administration to combat widespread tax evasion.\n  - Resist further large increases in current spending; free resources for public investment.\n  - Consider more fundamental tax reform aimed at simplifying the system and broadening the tax base.\n  - Cast plans within a multi-year debt reduction plan to guide fiscal policy and ensure debt sustainability."
    },
    {
      "heading": "Monetary policy and central bank recommendations",
      "content": "- Achievements and targets:\n  - Commended the Central Bank of Turkey (CBT) and the government for reducing inflation to single digits.\n  - End-2004 inflation target of 12 percent deemed clearly achievable.\n  - CBT's skilful use of monetary policy central to achievement, supported by fiscal discipline and public sector wage restraint.\n- Recommendations to strengthen monetary framework:\n  - Preserve central bank independence.\n  - Back low inflation with continued supportive fiscal and incomes policies.\n  - Enhance the CBT's monetary framework and increase transparency.\n  - As first steps: give the monetary policy council more of a role in advising the Governor on interest rate decisions, and time interest rate decisions to coincide with monetary policy council meetings."
    },
    {
      "heading": "Financial sector reform and banking system",
      "content": "- Progress noted:\n  - Creation of an independent Banking Regulation and Supervision Agency (BRSA).\n  - Tightening of supervisory practices.\n  - Recapitalization and restructuring of state banks.\n  - Triple audit and recapitalization of private banks.\n  - Banking system much stronger as a result.\n- Remaining agenda:\n  - Accelerate recoveries from bad assets.\n  - Privatize the state banks.\n  - Lower distortionary taxes on financial intermediation.\n  - Legal reform, including passage of a new Banking Act."
    },
    {
      "heading": "Investment climate and labor market",
      "content": "- Recommendations:\n  - Continue efforts to improve the investment climate to stimulate growth, attract foreign direct investment, and boost jobs.\n  - Quickly implement steps recommended by the inaugural Investment Advisory Council meeting in mid-March 2004.\n  - Press ahead with labor market reforms given persistently high unemployment despite strong growth."
    },
    {
      "heading": "Key statistics — Turkey: Selected Economic Indicators, 2000-04 (selected rows preserved exactly)",
      "content": "- Real sector (in percent)\n  - Real GNP growth rate: 6.3; -9.5; 7.9; 5.9; At least 5\n  - GNP deflator: 50.9; 55.3; 44.4; 22.5; 11.5\n  - Nominal GNP growth rate: 60.4; 40.5; 55.8; 29.7; 17.1\n  - WPI (12-month, end-of-period): 32.7; 88.6; 30.8; 13.9; 14.2\n  - CPI (12-month, end-of-period): 39.0; 68.5; 18.4; 12.0;\n- Central government budget (in percent of GNP)\n  - Primary balance: 4.6; 4.8; 2.4; 5.0;\n  - Net interest payments: 15.8; 24.7; 17.5; 16.1; 13.6\n  - Overall balance: -11.2; -20.0; -15.1; -11.1; -8.6\n- Consolidated public sector\n  - PSBR (including CBT profits): 3.0; 5.5; 4.1; 6.5; 21.9; 26.6; 13.5\n  - Operational balance: -6.9; -4.7; -4.4; -4.8; -2.9\n  - Net debt of public sector: 58.3; 93.9; 78.8; 70.5; 70.3\n  - Net external: 19.0; 37.7; 32.1; 22.2; 22.7\n  - Net domestic: 39.3; 56.2; 46.7; 48.3; 47.7\n- External sector\n  - Current account balance: -4.9; -0.8; -2.8; -3.5 to -4\n  - Gross external debt: 59.0; 79.0; 72.1; 61.8; 53.2\n  - Net external debt: 38.8; 53.8; 54.6; 45.1; 40.7\n  - Short-term external debt (by remaining maturity): 21.7; 17.9; 16.2\n- GNP\n  - GNP (in billions of U.S. dollars): 201.3; 144.0; 182.7; 238.5; ...\n  - GNP (in quadrillions of Turkish lira): 125.6; 176.5; 275.0; 356.7; 417.6\n- Sources: Data provided by Turkish authorities; and IMF staff estimates.\n\nPublic Information Notice: IMF Concludes 2004 Article IV Consultation with Turkey — August 10, 2004.\n\n---\n\n\n References\n\n- Republic of Türkiye and the IMF\n- Public Information Notices\n- Article IV\n- https://www.imf.org/en/home\n\nSource: https://www.imf.org/en/news/articles/2015/09/28/04/53/pn0487"
    }
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    "Published: August 10, 2004",
    "Collapse of the 2000 exchange rate-based disinflation program and floating of the lira in February 2001 led to:",
    "Subsequent policy response and outcomes:",
    "Remaining vulnerabilities:",
    "Policy opportunity:",
    "Directors welcomed achievements and commended the authorities for:",
    "Persisting concerns:",
    "Short-run observations:",
    "Policy recommendations:",
    "Central messages:",
    "Structural and fiscal-reform measures urged:",
    "Achievements and targets:",
    "Recommendations to strengthen monetary framework:",
    "Progress noted:",
    "Remaining agenda:",
    "Recommendations:",
    "Real sector (in percent)",
    "Central government budget (in percent of GNP)",
    "Consolidated public sector",
    "External sector",
    "GNP",
    "Sources: Data provided by Turkish authorities; and IMF staff estimates.",
    "[Republic of Türkiye and the IMF](http://www.imf.org/external/country/TUR/index.htm)",
    "[Public Information Notices](https://www.imf.org/en/news/searchnews)",
    "[Article IV](https://www.imf.org/external/pubs/ft/aa/aa04.htm)",
    "[https://www.imf.org/en/home](https://www.imf.org/en/home)"
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