ECONOMY

New Turkish government, IMF agree on all main points in talks

ANKARA (Reuters) – Turkey’s new government and the International Monetary Fund agree on all the central aspects of their $16 billion loan pact, Finance Minister Kemal Unakitan told reporters yesterday after meeting the fund’s European director. The Justice and Development Party (AK) came to power after November elections and has pledged to stand by the IMF pact, a deal offering cash to help handle Turkey’s heavy debt load in return for liberalizing reforms and a tight budget. AK officials have said they want to increase the «social dimension» of the plan, to bring employment and relief to millions who have suffered under two years of financial crises and recession. Unakitan said there had been no disagreement on principles during a meeting with the fund’s European director, Michael Deppler, who is visiting to meet the new administration. «There is no issue in which we do not agree with the IMF in essence,» Unakitan told reporters after the meeting. Deppler’s visit will be followed by a more specialized IMF team on December 9, which will resume work on the next phase of Turkey’s loan deal and reforms linked to a $1.6 billion payout. Turkey’s IMF deal has succeeded in lowering inflation and the arrival of the AK government has driven down the cost of borrowing. The plan, however, is lagging behind in terms of privatization and some analysts say Turkey will probably overspend the budget limits set for this year. Turkey needs a primary surplus of 5.5 percent of gross national product (GNP) for 2003 and afterward to sustain confidence in its economic recovery, credit rating agency Fitch Ratings said yesterday. Fitch’s estimate is lower than the 6.5 percent of GNP Turkey said it would achieve in 2002 and 2003 in its July 2002 letter of intent agreed with the IMF. «The fiscal challenge is significant,» said Fitch in a comment on Turkey’s ratings. «The government will need to achieve a primary fiscal surplus of 5.5 percent in 2003, and to sustain this for some time. Concerns over debt dynamics have fallen, but confidence is fragile and even a small rise in interest rates could reignite these worries.» Fitch rates Turkey at B, the lower end of the speculative-grade, or «junk,» range. The Turkish lira closed at a five-month high yesterday on hopes for Turkey’s EU membership bid, despite the central bank intervening on foreign exchange markets to sell lira and dampen lira volatility. The lira ended the day at 1,523,000 to the dollar, off an earlier high at around 1,510,000 but beating Friday’s 1,531,000 close, its best since June 11. While lira strength helps Turkey’s fight against inflation, it is a handicap for exporters who are expected to drive the country’s return to strong growth after the damage of financial crises in 2000 and 2001.