ECONOMY

IMF asks Ankara to be more specific on budgetary measures, reforms

Ankara – The International Monetary Fund has asked Turkey to be more specific on how it will meet tough budget targets under a $16 billion, debt-management loan pact, Turkish officials said yesterday. Turkey was drafting ways to shave spending and raise income to meet and exceed the IMF’s main primary surplus target of 6.5 percent of gross national product (GNP), the officials said. Turkey is taking the unusual step of writing its own «letter of intent,» a list of pledges of reforms and budgetary measures it will take to abide by the lending pact. The fund usually writes the letter for its borrowers. Economic officials denied media reports that the IMF had rejected Turkey’s latest draft of the letter but said the international lender had asked for «editing» of the document during the process of drafting. «There has been no rejection of the letter of intent under preparation. A preparatory draft was sent to the IMF. They conveyed their views on the letter. The letter of intent has not been given its final form,» one official, who asked not to be named, told Reuters. Financial markets are watching the process closely, seeing IMF approval, if it comes, as confirmation that the new Justice and Development Party (AK) government is determined to do what is needed to reduce inflation and a heavy debt burden. As well as crucial market confidence, a $1.6 billion loan tranche, delayed from late last year, is also at stake. It should be paid out once the IMF has approved the latest letter of intent and delayed reforms have been implemented. The central promise under the lending pact, designed to lower inflation and prevent a repeat of damaging financial crises in 2000 and 2001, is the «primary surplus.» The primary surplus measures the budgetary balance, excluding payments on debt, and is seen by the IMF and markets as a sign of Turkey’s determination to reduce its debt load. The pact demands a public primary surplus of 6.5 percent of GNP in 2003 and officials say the budget is well short of that. But the AK government is aiming to exceed the target in a bid to restore market confidence, another economy official said. Ongoing meetings of the High Planning Board (YPK), setting out 2003 budgetary targets, had agreed on the need for a higher target, he said. «At yesterday’s YPK meeting, the political intention is moving toward setting a primary surplus of above 6.5 percent. The technical details of how to reach that will be discussed at today’s meeting,» said one economy official close to the process. A second package of cost-cutting measures was in preparation, he said. It would raise around 6,500 trillion lira or around 1.8 percent of GNP forecast at 354,575 trillion lira (some $214 billion). An earlier set of revenue measures had brought the primary surplus on the consolidated budget to 3.7 percent of GNP. The second package, which officials said would contain potentially divisive reductions in state pay rises, would bring the consolidated budget primary surplus to 5.5 percent. That would roughly match the IMF target.