Turkish economic reforms are back on track, says IMF official

WASHINGTON – Investors’ confidence in Turkey’s economy has been justifiably shaken by the Iraq war and Ankara’s slippages in meeting targets, but was back on track, the International Monetary Fund (IMF) said on Friday. «Markets have become more skeptical and, frankly, there is some basis for that,» IMF Director for Europe Michael Deppler told Reuters in an interview. «But now the government has a firm commitment – and I can assure you that in my judgment, they are firmly committed – but it depends on them fulfilling these policies,» he said. Turkey has a $16-billion loan program with the IMF and last Saturday delivered a letter of intent laying out the terms of its economic program. «They’ve gotten their act together on policies and basically, what the board is looking at next week, is a set of policies that brings the program back on track,» Deppler said. Turkey suffered a harsh recession after the 1991 Gulf War and, with the country still reeling from an even deeper recession in 2001, markets took fright when Ankara’s Parliament refused to allow US troops to use the nation as an invasion jump-off for neighboring Iraq. Agreeing to this would have sealed an estimated $30 billion in US aid but high feelings in the country against the US-led invasion of Iraq blocked the plan. In addition, the ruling Justice and Development Party, elected last year, took its eye off the economic ball. «These political difficulties that they face have led them to not pay enough attention to the economic policies… But they have made up their minds, and in this context they have gotten their act together on policies,» he said. The country is still hoping for $8.5 billion worth of US loan guarantees. Deppler said this was «not part of the financing package in our baseline scenario» but acknowledged that the money would be most welcome and said that he «had no reason to doubt that its going to happen.» Markets have also grown increasingly skeptical that Ankara can deliver on a pledge to grow the country’s economy by 5 percent this year, following 8 percent in 2002, and keep inflation from spiraling out of control. Deppler said price growth could be curbed, provided the government stayed on track with its policies, although if the currency suffered a serious depreciation the goal would become much harder to fulfill. «On growth we have 5 percent in the program after 8 percent last year and with a 2 percent carry-over from the second half of 2002… So I would view it as being in the realm of do-able, for sure,» he said.