Turkey and the IMF
IMF First Deputy Managing Director Stanley Fischer said today that Turkey's IMF-supported economic program was on track and noted that the IMF's Executive Board is expected to consider in the third week of December the strengthened package of measures recently agreed by the Turkish authorities and IMF staff.1
"The disinflation and fiscal adjustment program launched by the Turkish government in late 1999 has achieved important results: inflation this year will be the lowest since the mid-1980s; growth has picked up strongly; and public indebtedness, which was rising steeply in relation to GDP last year, is now falling.
"However, the pace of disinflation has been less than targeted and the external current account balance has weakened more than anticipated, partly because of oil prices and partly because of the strength of the rebound in economic activity.
"Against this background, the authorities and the staff announced on November 15 agreement-for review by IMF Management and Executive Board-on a marked reinforcement of the policy package, including a further improvement in 2001 of the primary surplus of the public sector from 3 to 5 percent of GNP. 2 Structural policies are also to be strengthened, including importantly in the areas of banking and privatization.
"In Management's view, these policies represent an apt response to developments, geared as they are to containing excessive domestic demand pressures, raising domestic saving, and reducing the external current account deficit. Management expects the IMF's Executive Board to consider the policies in the third week of December.
"More recently, money and foreign exchange market conditions have become quite volatile. Against the backdrop of the significantly more disciplined approach to banking supervision embedded in the program, the authorities' response has been twofold:
-a temporary easing of domestic liquidity constraints so as to avoid a disruption of domestic money market conditions; following this injection, the net domestic assets of the central bank are being gradually brought back into line with the quarterly framework specified in the program; and
-more fundamentally, accelerated adoption of the policy measures underlying the 2001 fiscal program, including the privatization aspects. To that end, they have enacted a first tax bill and intend to implement the balance of the measures by the end of November.
"In sum, the program is on track, and it is expected to remain so given the authorities' strong policies for 2001," Mr. Fischer said.
1 The Board meeting in December is to complete the third and fourth review under the three year standby with Turkey approved on December 22, 1999 for a total amount of SDR 2,892 million (about US$ 3.7 billion). Each tranche is for SDR 221.7 million (about US$283 million), of which three have already been disbursed. Two more would be disbursed upon completion of the third and fourth review.
2 The operational deficit of the public sector (i.e. the deficit adjusted for the erosion in the real value of public sector debt due to inflation) is projected to fall to 2 3/4 percent of GNP (a fall of more than 3 percent of GNP with respect to 2000). Public indebtedness in relation to GNP is projected to fall by almost 5 percentage points of GNP to about 56 percent.
IMF EXTERNAL RELATIONS DEPARTMENT