IMF praises Turkey’s progress, agrees to flexible selloff strategy

ANKARA – The IMF yesterday heaped praise on Turkey for progress under a $16 billion pact but said Ankara must pass more economic reforms before it considered future loan tranches for its frail economy, recovering from crisis. A visiting International Monetary Fund team, ending talks in Ankara, set a tentative November date for its executive board to review the question of when to pay the latest $500 million loan tranche due under the loan rescue pact. Investors hope the ongoing review can be completed speedily after delay in a previous review earlier this year prompted a sharp rise in the cost of servicing Turkey’s massive domestic debt load. The IMF said Ankara’s efforts since had produced results beyond expectations. The lira and Turkish T-bills have since firmed sharply, putting inflation and growth targets for 2003 well within reach, IMF Turkey desk chief Reza Moghadam said. «All is beyond expectations, beyond the targets set… There are still some details to be finalized (to complete the review) but we have reached an agreement on the steps needed,» he told an Ankara news conference. Turkey’s central bank on yesterday cut interest rates for the sixth time since April, citing falling inflation and the government’s sound fiscal policy. It cut the overnight borrowing rate by three percentage points to 26 percent and the overnight lending rate by four percentage points to 31 percent. The move prompted yields on Turkey’s busiest domestic debt to edge below 30 percent, the lowest level since the 2001 crisis. Moghadam also said the fund had agreed with Turkey on a tight 2004 budget, which he expected the government to present to Parliament by the end of the week. Ankara must also pass a law reforming public sector financial management and laws bolstering the independence of Turkey’s banking regulator before the IMF board meets, Economy Minister Ali Babacan told the same news conference. A direct tax reform must also be approved by the cabinet, Babacan added. The two sides said Turkey had taken the extra measures needed to meet a headline primary surplus target for the 2003 budget of 6.5 percent of gross national product (GNP), which excludes payments on some $130 billion of domestic debt. Babacan said the government had introduced extra measures worth 0.3 percent of GNP to meet the target, including halting government investments worth 99 trillion lira ($70 million) and raising taxes on automobiles and alcohol. While Turkey must move swiftly with economic reform, Moghadam indicated more flexibility on a previously agreed timetable for privatization. Turkey aims to generate cash revenues from privatization of some $2.2 billion in 2003, but analysts say the government may struggle to meet the target.