By Steve Bryant - Bloomberg

The International Monetary Fund said a Turkish amnesty on debts to the social security system is a “regrettable” step that may weaken the credibility of the government and undermine future revenues.

Parliament in Ankara last week approved measures offering extended repayment schedules and waiving fines on 23.4 billion liras ($20 billion) owed to the state-run health and pensions insurer.

“This amnesty is a step backward, which will further undermine payment compliance by rewarding those citizens that fail to pay their taxes and social security contributions on time,” the fund’s Turkey mission chief Lorenzo Giorgianni said in an e-mailed statement. The move “may also be seen as weakening policy credibility as it runs counter to the government’s own medium-term economic program, which includes a commitment to avoiding any amnesty.”

Turkey and the fund concluded a $10 billion lending accord on May 10. The government says it may sign a less binding agreement with the IMF that wouldn’t involve any lending.

The debt amnesty follows an announcement by the government that it will loosen budget targets in order to spend more on job creation and infrastructure.

Businesses will be given two months to decide whether to join the plan, Labor Minister Faruk Celik said in Parliament during debate on the legislation. Those who pay all of the debt in the third month will be exempt from paying 85 percent of the interest due. Companies seeking a longer repayment schedule will get discounts of between 30 and 55 percent.

Celik said the plan should enable the government to collect at least half the outstanding social security debts.