Budget draws World Bank’s ire

Ankara – The World Bank’s representative in Turkey said yesterday it could not approve the country’s 2003 budget – which has been largely approved by the IMF – and called it «anti-poor» and bad for farmers. World Bank representative Ajay Chhibber told Reuters in an interview that around $1.375 billion in loans – the total of remaining tranches from loans for public sector and financial sector reform, economic reform and agriculture loans – would be stopped unless the budget was revised. His harsh comments raise doubts over Turkey’s relations with international lenders, which had appeared to be on an even keel after the IMF announced a wide agreement on Saturday. «This is not a budget that the World Bank will support,» Chhibber said, criticizing plans for tax amnesties, new taxes and an end to direct support for farmers. The budget is being debated in parliamentary commissions ahead of a final vote. «It’s a budget that supports people who don’t pay taxes because it gives them a tax amnesty and those few who pay taxes, especially in the middle class, have been taxed again and again,» he said. Chhibber’s statements increased fears in the markets that World Bank loans could be suspended. Shares on the main Istanbul index closed 1.31 percent lower at 10,817.49 points after being in positive territory in the morning session. «What Chhibber said was quite unexpected, because we thought the government had reached agreement on the main lines with the IMF. But what he said has given me chills. It seems something is wrong,» said Hakan Avci at Global Securities in Istanbul. Chhibber said that Turkey had come a long way to returning to stable growth and reducing its debt to GNP ratio, although there was still work to be done. The World Bank was also discussing a new Country Assistance Strategy for Turkey over 2003-2005 of between $1.5 billion and $4.5 billion, he said. The draft budget introduces new taxes to meet an IMF-backed target of 6.5 percent primary surplus of gross national product, seen as crucial to managing Turkey’s debt load, as well as cutting inflation and real interest rates. The financial plan also involves what the government calls «tax peace,» a scheme under which outstanding disputes over unpaid taxes can be resolved. Critics say it amounts to an amnesty. Disagreements over tax policy and the long-delayed 2003 budget were crucial aspects of the talks between the Justice and Development Party (AK) and the IMF. Chhibber said he was surprised that the AK had produced such a budget after campaigning on pledges to help the poor. «What is surprising is that the AK, which has a program of social justice, has come up with this budget,» he said. The IMF said on Saturday after weeks of protracted discussion that it had reached agreement with Turkey on the way forward for its $16 billion loan pact. «We think this budget is really quite anti-poor, it hurts the farmers, it has no money for direct income support. They took it out. This budget is also harmful to growth,» he said. To attain the primary budget surplus target, the 2003 budget also cut out 1,400 trillion lira of direct income support (DIS) payments for farmers in 2003. Direct income support is one of the pillars of a $600 million World Bank agriculture reform plan that aimed to phase out the indirect subsidies to farmers, which have put a heavy burden on the treasury in previous years. Eliminating the direct support plan would mark a reversal for years of World Bank policy in Turkey. «It (direct income support) is supposed to be a permanent program… Our worry is that this may be a major reversal of the structural reforms. So we are not happy about it,» he said. He said a budget target of 5 percent growth in 2003 would be achievable only if there is no war in neighboring Iraq. Chhibber also said a World Bank-backed program to help Turkish firms and banks restructure bad loans that were hobbling the economy had been «quite successful.» He added that the bank may provide up to $450 million of loans to the small and medium-scale enterprises’ sector in terms of export financing.

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