WASHINGTON (Reuters)–The International Monetary Fund on Monday approved a $12 billion increase in its lending to Turkey–swelling the lender’s Turkish loan program to $31 billion and making Ankara the IMF’s largest-ever beneficiary.
IMF Managing Director Horst Koehler said the increased lending reflected the belief that Turkey’s "progress is impressive–and the authorities are committed to doing what is necessary for the country’s economic and financial recovery through continued steadfast policy implementation."
The new three-year loan supports the government’s economic program for 2002-2004 and comprises $12 billion of new cash and about $4 billion in cash left from the economically-troubled nation’s existing $19 billion loan program. About $6 billion of the loan is pegged to repay earlier IMF loans.
About $9 billion of the cash is available immediately under the loan–which assumes 3 percent economic growth this year and 5 percent growth in each of 2003 and 2004 after 2001’s 8.5 percent contraction.
After that initial $9 billion payment–a little over $5 billion will be disbursed to Turkey throughout the rest of this year. That cash will be given after three bimonthly reviews each worth $1.1 billion and one quarterly review worth $1.5 billion. Another $1 billion is pegged for each of 2003 and 2004 following reviews of progress.
Koehler reiterated that Turkey must "flawlessly" implement its economic plans if it is to succeed.
"Achieving sustained reductions in public indebtedness will require high primary budget surpluses over the medium term–underpinned by fundamental reforms of the tax and spending policies," Koehler said.
One IMF board member told Reuters after the executive board ended a three-hour meeting on the issue–"It’s a lot of money and nobody on the board is particularly happy about that."
The latest cash boosted IMF commitmen’s to Turkey under its current economic program to $31 billion–topping $22 billion in commitmen’s for Argentina.
The latest Turkish cash will be used to bridge a financing gap this year as the country grapples with its worst recession in more than 50 years and attempts to rebuild its economy.
Turkey secured a $3.6 billion loan program with the IMF in December of 1999 but faltering progress on economic reforms and then a banking crisis left that economic program in tatters.
The crisis deepened economic woes in Turkey and led the IMF to boost lending by another $7.3 billion in December 2000. That program initially appeared to take hold but then weakness in the country’s coalition government caused confidence to crumble as progress on reforms was patchy.
That in turn led the government to float its lira currency–a move which required a further boost in IMF lending in May of last year–taking the loan program to a massive $19 billion.
In return for that cash–Turkey made a further series of pledges to reform its economy and stamp out corruption and patronage–problems perceived as permeating the very fabric of business and power there.
But despite making solid progress on reforms and winning repeated praise from both the IMF and US Treasury–the Turkish government’s efforts to boost economic prospects were dealt a hammer blow by the bruising knock-on effects of the Sept. 11 attacks on the United States.
The ensuing war in neighboring Afghanistan battered the tourism sector and a global recession dashed hopes that the weak lira would buoy prospects for exports.
Some economists have said the additional money for Turkey came because of the nation’s help in the US-led war on terrorism–a claim denied by both Ankara and Washington.
Meanwhile–in New York–Turkey’s Economy Minister Kemal Dervis said he was disappointed by January inflation data–prices rose an unexpectedly large 5.3 percent on the month–but said that target of cutting inflation to 35 percent for the year could be met.
Later the IMF said it too was disappointed by the January data but that the annual inflation target could still be met and that the recent appreciation of the lira was not a cause for concern. The loan program targets inflation falling to 20 percent in 2003 and 12 percent in 2004.
Dervis also said that the Turkish lira–which has lost more than 50 percent of its value since it was floated almost a year ago–should remain relatively stable and not spur inflation. Reeling in inflation in Turkey is key to success in the IMF’s loan program but has been its Achilles heel in the past.
"Lowering inflation on a lasting basis will be central to the achievement of a stable macroeconomic environment conducive to economic growth–and to the success of the floating exchange rate regime," Koehler said.
Dervis said brighter days were ahead.
"We will not need this kind of large-scale financing after 2002," Dervis said.