Press Release No. 04/7

Press Release: IMF Mission Completes First Stage of Discussions for the Seventh Review under Turkey's Stand-By Arrangement

January 21, 2004

An International Monetary Fund (IMF) mission headed by Mr. Reza Moghadam today completed the first stage of the Seventh Review discussions under Turkey's Stand-By Arrangement with the IMF. The discussions focused on the economic policies needed to build on Turkey's impressive economic achievements in 2003 under the arrangement.

The mission assessed the budgetary outlook and the measures required to compensate for the cost to the budget of recent increases in pensions and minimum wages, as well as for lower than expected tax revenues. Throughout the discussions, the government stressed that it remains committed to the 6.5 percent of GNP primary surplus target and that it will take all necessary steps to achieve this goal. The government has decided to cut discretionary spending by 10 percent to broadly cover the budgetary costs of pension and minimum wage increases and is reviewing a range of options to address the projected revenue shortfall. In this regard, attention is being paid to the quality and sustainability of fiscal adjustment.

The mission also worked with the authorities on developing a timetable for structural reform over the remainder of the arrangement. In particular, it focused on the steps needed to expedite reforms in the banking area. To this end, discussions centered on the financial sector supervisory and legal framework and on ensuring that best international standards, including on governance, were adhered to. The mission also looked at steps needed to further improve government expenditure management and revenue collection, and to accelerate privatization.

A follow-up mission is expected to return to Turkey in February.

The Stand-By supporting Turkey's economic program covers 2002-04. Of the total Fund financing of some SDR 12.8 billion (about US$19.1 billion), SDR 1.7 billion (about US$2.5 billion) remains to be disbursed. Completion of the Seventh Review by the Fund's Executive Board would trigger a disbursement of SDR 340.2 million (about US$507 million).