Press Release No. 04/163

Press Release: IMF Completes Eighth Review Under Stand-By Arrangement with Turkey and Approves US$661 Million Disbursement

July 30, 2004

The Executive Board of the International Monetary Fund (IMF) today completed the eighth review of Turkey's economic performance under the Stand-By Arrangement. The decision will enable Turkey to draw an amount equivalent to SDR 454 million (about US$661 million) from the IMF immediately, bringing total disbursements to an amount equivalent to SDR 11.9 billion (US$17 billion) under the arrangement.

With this decision, the Executive Board also granted Turkey's request to waive the non-observance of an end-April performance criterion in regard to a small deviation from the target for base money.

Turkey's Stand-By Arrangement was approved on February 4, 2002 (see Press Release No. 02/7) for a total amount of SDR 12.8 billion (about US$19 billion).

Following the Executive Board discussion, Rodrigo de Rato, Managing Director and Chair, said:

"Turkey's economic performance continues to be impressive. Growth has been sustained and rapid, and is likely to exceed this year's 5 percent target. Inflation has been lowered dramatically to single digits and the 12 percent end-year target is clearly achievable. The government's record of strict fiscal discipline, including taking remedial actions where necessary, has been instrumental to this success. Together with the Central Bank of Turkey's commendable conduct of monetary policy, fiscal discipline has contributed to the success in reducing inflation and laid the basis for strong and sustained growth.

"The immediate macroeconomic challenge is to avoid a widening current account deficit. So far the financing of the deficit has not been a problem. Indeed, the central bank has been able to build reserves during the first half of the year. The authorities' recent steps to curtail consumer lending and reduce consumer spending, together with rebounding tourism revenues, should help stabilize the current account deficit. However, strict fiscal discipline and saving any budget overperformance, at least until the risks to the current account have been clarified, will remain key to maintaining the success of the authorities' macroeconomic program.

"The authorities' structural reform agenda is critical for supporting their fiscal effort, sustaining strong economic growth, boosting job creation, and underpinning the success of the program. Notwithstanding some delays, the government's efforts to improve tax administration and the social security system are especially important in this respect. The planned integration of Pamuk and Halk banks is welcome, as is the authorities' announcement of their new strategy for the state banks, and the Savings Deposit Insurance Fund's (SDIF) strengthened commitment to accelerating asset sales. Adoption of new banking legislation more closely in line with EU standards will also be a key landmark. Looking ahead, the authorities need to regain momentum in privatization and should implement policies needed to attract foreign direct investment, building on the March inaugural Investment Advisory Council.

"The Turkish authorities have maintained their strong record of program implementation. They have also demonstrated their commitment to ambitious structural reforms that will help underpin fiscal consolidation and debt sustainability. The result has been strong growth, low inflation, and steady reductions in the government debt ratio. These strong efforts deserve the continued support of the international community," Mr. de Rato said.