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Transcript of a Conference Call with Journalists on IMF Board Decision to Lend to Turkey, by Michael Deppler, Director, European I Department, IMF
February 4, 2002
MR. HAWLEY: This is David Hawley from the IMF Press Office. I have Michael Deppler on the line. Are you there, Mr. Deppler?
MR. DEPPLER: Right here.
MR. HAWLEY: And Juha Kahkonen, both of the European I Department. Mr. Deppler is available to take questions on today's decision by the IMF Executive Board to lend to Turkey. Those of you who have seen the wires and received our press release will be aware of the decision which is the approval of a three-year standby arrangement.
We have about 20 minutes for this call starting at 5:30, and if it would be of help to the wires, we could agree to set an embargo for about 15 minutes after the conclusion of the—after the conclusion of this conversation, if that's agreeable to the wire reporters on the line?
ALL: Yeah, sure, fine.
MR. HAWLEY: Well, at the end of the conversation I'll set an embargo time.
QUESTION: And I'm sorry, the ground rules, is he on background or—
MR. HAWLEY: No, this is on the record.
So Mr. Deppler is available for questions. He'll be grateful if you could identify yourself when you ask a question of him. Michael Deppler, over to you if I may.
MR. DEPPLER: If you read the first release, you'll see that it's quite positive about the authorities' program and the implementation of the program to date, but there's also a strong caution about the need for the authorities to continue with their program quite faithfully. But on that basis, the Executive Board approved the new SBA, which is therefore the operative arrangement with the Fund as of now.
QUESTION: Turkey's January special figures are higher than expected. Do you think such a trend could threaten the inflation leg of the Turkish program, and 35 percent inflation is anticipated for this year. What's the allowable limits over this?
And my second question is: in the first several months the Turkish Lira has lost more than 60 percent of its value, and it is now unexpectedly gaining some 20 percent, but this is not a welcome development by the government. Do you think this threatens the Turkish exports situation, and does this have any other drawbacks? Thank you.
MR. DEPPLER: On inflation, the figure today was disappointing, but there are a number of special factors that are at play, including some increases in administered prices and the VAT, and some bad weather. It is somewhat higher than we would have liked to see, but I now view the 35 percent target as quite unaffected by this figure.
On the Lira, the strengthening of the Lira is in a sense good news. It's a symbol of the fact that the confidence is returning into Turkey, and one sees this in the form of an appreciation of the currency, people feeling more comfortable about holding Turkish Lira rather than dollars.
Now, there is the medium term an issue about what this is going to do to exports, but as of now, to our minds, this is something where the situation is comfortable and there's no immediate source for concern.
QUESTION: The Central Bank President of Turkey, in an interview today with Bloomberg, said that he was concerned about inflation pressures because of the arrangement in Turkey where there will be generous wage agreements with state employees, said that's threatening for more price growth. Is the IMF concerned as well, and what do you make of the Central Bank President making these comments?
MR. DEPPLER: Inflation in Turkey is the enduring problem. As you know, this is one of the few countries which is in the high double digits in terms of inflation around the world, and not only that, but the inflation has proven quite stubborn, mainly because people have a history of expecting inflation and, hence, of a resistance to thinking in terms of the lower rates.
Now, as part of this in the public sector, there are indexation mechanisms to protect the salaries, particularly in the public sector, and this is what the governor was concerned about. These are things which in our mind also need to be addressed. Turkey would generally benefit from a situation where there was less inertia in the system than there is now. So I find his comments appropriate.
QUESTION: I understand from the statement in the general sense that you find it quite realistic, the ambitious goals of the primary budget surplus for this year could achieve that. I think Mr. Köhler has just the importance of a reduction in the public employment. What could be done to reduce the social cost of that?
And are you concerned that given the political situation in Turkey and given how feeble, how weak the government is politically, that could divert the program from its track?
MR. DEPPLER: Okay. Let me say several things here. The 6½ percent budget for this year is—the measures to deliver that 6½ percent have been agreed and basically either decreed by the government or passed by the Parliament. So the 6½ percent for this year is not really an issue.
But there is an issue about the sustainability of the fiscal position in the medium term, and there is separately a question of equity between various segments of the society as to who should bear the cost of this adjustment to the crisis.
Now, from both those points of view, there is a need for greater efficiency in the public sector. The more efficiency you have in the public sector the more the budget can support some of the activities that are supportive on making the crisis more evenly felt throughout the economy. In this regard, I would emphasize the fact that this budget is one that has significant increases in expenditures for health, for social insurance, for education. There's provision in there for direct support to farmers, which helps the poor farmers. There are any number of basic aspects of the program which are really geared to trying to even out the burden of adjustment in this program. And it's true that there is a need to streamline the public sector, but this must be viewed in the context of the wider program, which tries to even out the burden across the whole society, rather than bearing down on particular groups.
QUESTION: By approving a fairly large standby credit facility and—
MR. DEPPLER: Not fairly large, very large.
QUESTION: Very large. And by making 9 billion [dollars] of that available immediately, is there any concern that you lose some leverage over ensuring that the reform program in Turkey continues to be carried out as pledged?
MR. DEPPLER: Okay. On this subject we need to be clear about this 9 billion [dollars]. The 9 billion which is the disbursement that follows on today's decision—there is a 9 billion disbursement—part of this—two-thirds—is to allow them to repay disbursements which were going to come due later this year under the SRF facility.
Now, the reason this swap is being made is basically to extend the term structure of the Fund's lending to Turkey. So the bottom line is, at the end of the day the net disbursement to Turkey today is 3 billion [dollars]. But in addition to that, there is a significant lengthening of the maturity structure of the Fund's commitments to Turkey, with the SRF repayments having been due this year, whereas the SBA repayments will only be due in about four years. So the situation is a bit more complicated.
QUESTION: I'm sorry. Could you go over those numbers again? You said how much is new this year?
MR. DEPPLER: I'm not talking about this year. I'm talking about the disbursement following today's decision of the Board. There is a purchase of 9 billion [dollars] odd, but it's tied to a repurchase under the SRF of about 6 billion [dollars] odd for a net of about 3 billion [dollars].
QUESTION: Okay. So the net addition to the entire program then would be—
MR. DEPPLER: 3 billion [dollars].
QUESTION: Would be 6, right, because you're giving them an additional 12 today, of which 6 is to pay back—pay back old loans, which leaves them with a net benefit of 6.
MR. DEPPLER: No, You have to—you shouldn't start with 12, but with 16. You see, there's 12 additional today. There's 4 remaining from the old program. So it gives you an amount of 16. And then there is 6 billion [dollars] of SRF repayments for a net of 10. And that's how you get—for the year, or for under the full program I mean.
QUESTION: Right.
MR. DEPPLER: Now, when you think about the transaction that falls just from today, what you have is basically 3 billion [dollars] net together with an extension of the maturity.
Now, to get back to the original question, the point is, is the leverage. There's still considerable leverage, to put it that way, left in terms of disbursement over the life of the program after today.
QUESTION: So how much of this money is disbursed? I'm sorry. For the rest of this year? I'm not sure. After this $9 billion.
And then my other question—this is Emily Schwartz again from Bloomberg. I mean, doesn't it defeat the purpose of the SRF, which after all, was created to provide more of an incentive to pay back loans early and to stop the cycle of countries owing the IMF more money and more money for more and more years?
MR. DEPPLER: On the second part of your question, the point is that the view is that Turkey's problems are more deep-seated than could be reasonably expected to be handled under an SRF-type facility, and this is why we're switching from SRF to SBA. And this is in tune with the more medium term approach taken through the resolution of Turkey's problems under the new arrangement. That's why it's a new three-year arrangement.
Now, your first question is?
QUESTION: I'm sorry. How much money exactly is to be disbursed in 2002, then 3 and 4. I don't have a real specific schedule.
And then on SRF, are you saying that it was a mistake to make them an SRF loan? Were they wrong country to make it, or have conditions changed?
MR. DEPPLER: I would argue that the situation changed. Essentially after 9-11 markets essentially froze up. Access to markets was no longer there. And, therefore, the return of confidence and the capital inflows, which is the premise of SRF repayment schedules, just is no longer valid as an empirical proposition, and therefore, we moved to a more medium term schedule of repurchases.
Now, in terms of the net amount this year that's coming, it's another 8 billion [dollars].
QUESTION: Dollars or—
MR. DEPPLER: Yeah, dollars.
QUESTION: Dollars.
QUESTION: I'm sorry, that's the amount due this year?
MR. DEPPLER: The total amount that will be disbursed this year will be 8 billion [dollars].
QUESTION: Including the 3 billion [dollars] net today, right?
MR. DEPPLER: Including the 3 billion [dollars] today net.
QUESTION: Wait. So then only—that leaves only—
QUESTION: 5 more?
MR. DEPPLER: Yes, for the remainder of this year.
QUESTION: No, no, no. I mean, what does this leave for 2003 and 4?
MR. DEPPLER: There's an extra billion [dollars] in 2003 and an extra billion in 2004.
QUESTION: What's the schedule for the rest of the year? How many review processes are anticipated and how will this $5 billion be divided in the review processes?
MR. DEPPLER: There's three bimonthly reviews and one quarterly review, and those 5 billion [dollars] are going to be disbursed over those four reviews.
QUESTION: Equally?
MR. HAWLEY: There's three—the monthly reviews are disbursements of 1.1 billion [dollars] apiece, and the final quarterly review is going to be 1.5 billion [dollars].
QUESTION: So there's four more reviews after this one just in—
MR. DEPPLER: This year.
QUESTION: —2002?
MR. DEPPLER: That's right. That's right.
QUESTION: Is the IMF concerned that if there's further instability in the region—you mentioned 9-11, and I guess that follows, that the events in Afghanistan also affected Turkey's economy and affected the decision behind this loan. There's a lot of talk about further operations. Would that then force the IMF to review its plan for Turkey?
MR. DEPPLER: The—
QUESTION: And the same with Iraq?
MR. DEPPLER: The estimate of an extra financing need of 10 billion [dollars] came directly from the events of 9-11. This was because of Turkey's vulnerability in terms of external indebtedness, the flight to safety of interest rates and a rise in interest rates because of tourism, because of exports. There was an exceptionally large impact on Turkey.
Now, in the event things have sort of quieted down somewhat, and, indeed, Turkey has regained access to capital markets to some extent, in our view this provides a cushion in the event of the future shocks that might arise in the region. It was always our view that the region had a dimension of uncertainty that needed to be allowed for in the program, and our view is this new program has a margin for this uncertainty, and it's designed to be robust to those uncertainties. It's not going to be perfect, obviously, but that is part of the design.
[End of teleconference.]
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