Statement by the IMF Staff Mission to TurkeyPress Release No. 06/227
October 23, 2006
The following statement was issued today in Washington by the International Monetary Fund's mission to Turkey on the conclusion of discussions related to the fifth review under the IMF's Stand-By Arrangement:
"An International Monetary Fund mission, led by Mr. Lorenzo Giorgianni, concluded discussions on the fifth review under Turkey's Stand-By Arrangement on October 20, and reached understandings ad referendum on a draft Letter of Intent.
"The discussions addressed the authorities' policy intentions for the remainder of this year and for 2007. The Turkish economy has shown considerable resilience in the wake of the financial market turbulence earlier this year. Domestic demand has slowed, but by less than expected, and there are signs of an upturn in exports that is helping to sustain output. At the same time, inflation remains above the target path and the current account deficit continues to widen. These circumstances, together with a less favorable global financial environment, call for the maintenance of a rigorous fiscal stance and tight monetary policy.
"Against this background, the authorities' submission to parliament of a budget consistent with a primary surplus target of 6.5 percent of GNP, for the fifth year in a row was a prudent step and appropriate response. The program also incorporates a number of safeguards to mitigate the spending overruns that have occurred in 2006 and help ensure that next year's expenditure assumptions are adhered to. Regarding monetary policy, the mission endorsed the central bank's overall stance and its current tightening bias, which should contribute to bringing inflation steadily back toward targets.
"The review discussions also covered the government's policies to strengthen tax administration, reform the tax regime, prepare for next year's launch of the new pension and health insurance systems, and reform the financial sector. The draft Letter of Intent updates near-term action plans in all of these areas.
"The understandings reached with the authorities are subject to approval by the Management and Executive Board of the IMF. In the period ahead, the government intends to firm up some of the policy undertakings and implement a number of actions to help underpin program objectives. Provided that these steps are taken in a timely manner, the IMF Executive Board is expected to consider the completion of the fifth review in December."