Press Release No. 06/236

Press Release: Statement by IMF First Deputy Managing Director John Lipsky During his Visit to Turkey

November 2, 2006

Mr. John Lipsky, First Deputy Managing Director of the International Monetary Fund (IMF) made the following statement on November 1, 2006 at a press conference in Istanbul:

"It has been a great pleasure for me to visit Turkey for the first time in my capacity as First Deputy Managing Director of the IMF. I would like to express my gratitude to all the government ministers and other members of the official and business communities I have met over the past three days for giving me their time and sharing their perspectives.

"As the saying goes, first impressions are lasting impressions, and my first impression of Turkey is of a country with remarkable energy and enormous potential. The signs of economic revival and modernization are everywhere.

"This resurgence in the economy has not, of course, happened by chance. It is the result of several years of hard work—above all, of rigorous financial discipline and difficult structural and institutional reforms. Major changes have been achieved over the past five years—on fiscal adjustment, central bank independence, financial sector restructuring, and privatization. These advances have contributed to both disinflation and strong growth. Sustaining this favorable combination will produce noticeable improvements in living standards for all. The recent surge in foreign direct investment reflects these achievements and represents a clear cut vote of confidence in the economy's greatly improved long-term prospects.

"From my discussions with both official and private sectors, I come away with the strong impression that the Turkish economy's transformation has taken root and is here to stay. Nonetheless, the sustainability of the reform process cannot be taken for granted. It will require continued efforts in the future, as well as steadfast adherence to the principles of prudent financial management while maintaining low inflation.

"Moreover, it is widely recognized that the environment for economic policymaking has become more challenging in recent months.

"Global financial markets are becoming less accommodating. Monetary tightening in the major economies is not yet over, while global growth could slow somewhat in the coming year. At the same time, financial markets are showing greater sensitivity to countries like Turkey that have high debt levels, a widening current account deficit, and that are subject to inflationary pressures.

"In this context, it is only natural that financial markets will be paying particular attention to whether fiscal discipline is maintained in the run up to next year's elections. From that perspective, the government's recent decision to continue targeting a public sector primary surplus of 6.5 percent of GNP next year is an important step, and I commend them for that decision. Fiscal prudence has underpinned all that has been achieved so far, and the consistent message I have received during this visit is that the steps that are needed to adhere to this goal are being taken. In particular, tight control of current spending will be important to ensure that adequate resources are available for investment.

"As far as structural reforms are concerned, the authorities are committed to maintaining the momentum by following through vigorously on various initiatives that are underway already. A top priority is the implementation of the new pension and health systems, that will put social security finances on a sustainable footing. Further progress also is planned on tax reforms. The goal is to reduce distortions, while strengthening compliance and fairness. Improving the efficiency of the financial sector is also crucial to support growth. In this context, the authorities are reinforcing the supervisory framework for the financial sector, bringing it closer to international best practice. The broad aim of all of these reforms is to improve the effectiveness of public institutions and to support a still more vibrant private sector, as the foundation for strong growth.

"Without any doubt the agenda is a full one. I know that implementation will involve tough choices. But the government shares our conviction that the combination of fiscal discipline, structural reforms and low inflation will continue to deliver strong economic performance for Turkey."