IMF’s $10 billion gamble
ISTANBUL – The IMF looks ready to grant Muslim Turkey, a key ally in the US-led war in Afghanistan, $10 billion in extra crisis loans, but the fund may be risking its reputation supporting a government struggling to deliver economic reforms. Analysts say the IMF and Turkey’s now rather buoyant markets will ultimately be forced to swallow the fact that painful state cutbacks and tax revisions are in the hands of a government blessed with scant popular support. With failed banks still to be off-loaded after a February financial crisis, domestic debt at $72 billion and little sign of much-needed privatization revenues, Turkey’s coalition of left and right – its fourth in just five years – may have its work cut out just to survive through next year, let alone until elections set for 2004. Checkbook out The checkbook is open once again. If I were an investor, that wouldn’t inspire confidence. Who was the IMF’s last biggest debtor? Argentina. Who was before that? Russia, says Sheetal Radia, emerging markets economist at Standard and Poors MMS. The financing has provided one last chance for Turkey to sort itself out. While analysts say Turkey must do more to reform, including passing a key public procurement law it pledged in October and tobacco reforms delayed since June, Turkish stocks and the lira have soared to their highest levels in months on the loan news. Turkey exploited that optimism on Monday, when the volatile lira and recession-battered equities rose to months-long highs, announcing a $500-million issue of five-year dollar bonds. But a new standby accord the IMF is due to sign with Ankara in December will be the third revision to Turkey’s economic program in two years after crises ripped through financial markets last November and February. IMF credibility is an issue too now…you can’t just keep writing checks, Radia said, adding that the two sides must negotiate an agreement that tackles the real problems of the country and attracts much-needed foreign capital. As it becomes the IMF’s headline debtor, Turkey has the highest inflation rate of all emerging market economies, over 80 percent in wholesale prices, and faces economic shrinkage of 8.5 percent of GNP, something that hardly inspires confidence. September 11 But IMF director Horst Koehler said on Friday it was the September 11 attacks that had compromised Turkey’s determined execution of an original $4-billion standby accord signed in late 1999 which then ballooned to $19 billion in May this year and is now set to swell to $29 billion in December. Analysts disagree, however, saying the problems of the embattled NATO member, which has pledged to send troops to Afghanistan, run far deeper than the September 11 attacks in New York and Washington. Prime Minister Ecevit said on Sunday his government was determined to liquidate a middle tier of bureaucracy and has pledged to launch the procurement law to help eliminate a hugely expensive system of patronage. But analysts say the government may not be ready to execute measures entailing higher stakes than previous reforms as they would go right to the heart of its murky economy. Sweeping reforms planned in farming foresee an end to decades-long state subsidies and the procurement law and other public reforms will ensure transparency in often scandal-ridden state sales and purchases. It’s about dismantling this cozy state mechanism. There’s a situation where the private sector and a large part of the population are taking rent from the government. Are politicians ready for that? That’s my biggest worry, said Tolga Ediz, analyst at Lehman Brothers in London. A better ally? The government, and for that matter the IMF, may not be popular here. The layoffs likely to follow state cutbacks will only worsen their standing. But there are no signs so far of mass street resistance to government policy. The authorities may at least take comfort in this. While the IMF says extra cash for Turkey is warranted after it passed a swath of laws designed to tackle a recent banking crisis, others maintain Turkey’s geopolitical importance has brought it better treatment than fellow-IMF clients like Argentina. I think part of it all has got to be the strategic question of Turkey (but) when they talk about Turkey’s strategic importance, not many can talk about what that means, says Ediz. Both countries have received multibillion-dollar aid packages but international lenders have reacted favorably to a Turkish request for a latest round of lending, while Argentina looks increasingly isolated. Analysts say that while the decision of the NATO member to send troops to Afghanistan may have won favor, especially with the USA, Turkey’s geopolitics is fraught with problems too. EU-Turkey relations aren’t that fantastic, it has to get on the boat quickly otherwise it’ll miss it…There’s also the Cyprus problem, Ediz said. Cyprus problem Turkey won candidacy to the EU in 1999, but relations with the bloc are tainted by problems with human rights and corruption. Ankara’s stance on Cyprus also comes in for criticism. The EU says Turkey is not doing enough to restart UN-brokered talks between the Turkish-occupied Turkish-Cypriot north and the Greek-Cypriot south. As Fund exposure to Ankara grows, the Turkish problem comes increasingly, to some, to resemble an IMF problem. Officials in Ankara and Washington must be hoping 2002, for all its perils, brings better news than 2001.