ECONOMY

Turkey’s recovery ‘better than on track’

ANKARA/DUBAI – The International Monetary Fund (IMF) said yesterday the success of Turkey’s $16 billion pact presented Ankara with the chance to turn its back on decades of economic instability. In Dubai, IMF director for Europe Michael Deppler told Reuters Turkey’s economic program was «better than on track» in comments which surprised many investors more accustomed to Turkey being slammed by the Fund. Turkey, a faltering candidate for European Union membership, is emerging from its worst economic slump since World War II, backed by sweeping IMF-backed reforms. Earlier in Ankara, IMF Turkey representative Odd Per Brekk said he was very encouraged by Ankara’s commitment to a cost-busting 2003 budget, needed to safely pay down a huge debt load swollen by financial crisis in 2001. «All this presents the government with an excellent opportunity to ensure Turkey finally makes a break with high inflation and the economic instability of the past and to put Turkey on a sustainable economic growth path,» he told Reuters. Turkey’s benchmark 2030 dollar bond soared to its highest price since launch in 2000 on the IMF comments, reaching 117.125 percent of face value, up 2.750 points on the session. «I cannot quite remember the IMF talking this nicely about Turkey,» said Tim Ash at Bear Stearns in London. The Turkish lira also hit a high for 2003 at 1,365,000 to the dollar on the interbank market, from 1,372,000 on Thursday. The IMF’s reputation may be as much on the line as Turkey’s after standby accords in fellow emerging markets Russia and Argentina fell into trouble, analysts say. But Ankara has reduced consumer price inflation to around 25 percent from over 80 percent in early 2001, while its economy is set to beat a 5 percent growth target for 2003, making it one of the world’s faster-growing economies. Review should go well The IMF said progress on a draft 2004 budget and budget reform would be the focus of an upcoming IMF review of Turkey’s program, due to begin on September 25. Deppler said he saw few problems with the review. Previous IMF visits were held up by slow progress on economic reform and steps to rein in government spending. «Turkey has an opportunity and they cannot waste it in terms of the fiscal requirements and the 2004 budget also needs to be credible,» said Isaac Tabor, senior emerging markets analyst at Merrill Lynch in London. Reforms of direct taxation, public financial management and cuts in the state payroll would probably be required before a loan tranche of some $350 million was released, the Fund said. The United States has also pledged NATO ally Turkey a loan package worth $8.5 billion, a deal that could be signed at the IMF annual meeting in Dubai starting on September 23. The ruling Justice and Development Party may also need to take extra revenue-raising steps to meet a headline primary budget surplus target for 2003 of 6.5 percent of gross national product. Brekk said it was too early to determine whether additional steps were necessary. «(But) the statements by the government, including those of Prime Minister Tayyip Erdogan, in staying with the program including budget discipline, are very positive,» he said.