ECONOMY

2003 budget will meet strict IMF criteria, Turkish PM promises

ISTANBUL – Turkish Prime Minister Abdullah Gul said yesterday a 2003 budget was ready that would meet strict criteria set by International Monetary Fund inspectors due in the country today. The IMF team is set to resume talks on long-delayed reform progress key to the disbursement of the next $1.6 billion installment from Turkey’s $16 billion loan deal, which aims to help it out of economic crisis. US Treasury Undersecretary for International Affairs John Taylor is also due in Ankara early today to discuss US aid to Turkey to protect the country’s fragile economy from the impact of a possible war in Iraq. A conflict could badly hit Turkey through higher imported oil prices, more expensive borrowing and lost tourism revenues. The arrival may help boost market sentiment as the visit suggests the IMF and the Justice and Development Party (AK) government have come closer to agreeing on the details of how Turkey will meet stern budgetary criteria for 2003. Markets rose in response, with the main share index gaining 2.46 percent and yields on Turkey’s heavy debt load dropping around a percentage point to 58.14 percent. Gul told reporters the budget would meet the IMF’s demand of a primary surplus, which excludes payments on debt, of 6.5 percent of gross national product. «All precautions have been taken to meet the primary surplus for the 2003 budget,» Gul said, without giving any details. The payment of the $1.6 billion loan tranche has been delayed since late last year by elections in Turkey and uncertainties over the economic policies of the AK government. Clarity needed The IMF last month asked for more clarity on the budget before it would send a team under Turkey desk chief Juha Kahkonen to discuss the payment. Washington is preparing a package of financial measures to offset damage the Turkish economy could suffer from any war in Iraq, but it is insisting that Turkey stick to the IMF plan. Details of the US war aid package are scant, but it is expected to be made up of loans and credit guarantees. Officials have mentioned a sum of between $4 billion and $15 billion, depending on the length and impact of a war. An initial tranche may not arrive before any war starts and is unlikely to exceed $2-4 billion, analysts said. Gul stressed that the 2003 budget had been drafted for flexibility in the event of war in Iraq. «Our forecasts have been made conservatively. That will secure some room for maneuver to prevent the economy being damaged by external shocks,» he said. Meeting the primary surplus target will require tough spending cuts as well as new revenue sources. Officials have already pointed to state contracts, military spending and healthcare as areas where some savings may be made. Preliminary data show the previous government fell well short of the primary surplus target for 2002, adding to the pressure on the AK party to match the targets. Gul yesterday announced a range of payments to farmers and other groups but promised that the spending would not breach the IMF limits. «There is no unbudgeted spending,» he said. Central Bank head Sureyya Serdengecti on Wednesday warned the government that seeking revenue through price rises in the state sector would pose inflationary risks and instead called for reforms to increase efficiency. Gul denied there was any difference of opinion between the government and the central bank on policy. «We meet every day. Such a thing is out of the question. However much I stress fiscal discipline, the central bank governor does too,» he said.