ECONOMY

Turkey, IMF disagree over size of country’s primary surplus

IZMIR – Turkey and the IMF disagreed yesterday over the size of a key budget target in what analysts saw as veiled negotiations for a fresh loan deal to succeed the country’s current $19 billion pact. Prime Minister Recep Tayyip Erdogan told a major economic conference the country would talk to the International Monetary Fund about lowering its public sector primary surplus target. But top IMF official Anne Krueger said Turkey needed to keep its primary budget surplus high to be sure of paying down the country’s heavy debt burden. «We do not have to continue with a 6.5 percent primary surplus (for the public sector),» Erdogan told the conference in the coastal city of Izmir. «We will talk to the IMF about how to reduce this.» It was not clear whether Erdogan was referring to this year’s IMF-agreed target or the terms of a possible follow-on deal after Turkey’s current IMF accord expires next year. Turkey is aiming for an overall primary surplus of 5 percent of gross national product (GNP) in 2004 under its IMF standby agreement, and 6.5 percent for the public sector alone. The IMF and the markets see a healthy primary surplus, which excludes substantial debt interest payments, as vital to ensure Turkey can continue to pay down its large debt stock. «Maintaining a high primary surplus is critical if Turkey’s debt burden is to be reduced to sustainable levels over the medium term,» Krueger told the same Izmir conference. «It is clear that a high primary surplus is not hampering growth performance – indeed, the resulting reduction in interest rates has actually encouraged growth.» Turkey’s GNP grew by 5.9 percent last year as the economy rebounds from a crippling 2001 financial crisis, and looks on course to meet a 2004 growth target of 5 percent. Continued IMF ties Turkey’s current IMF pact, agreed in 2002 in the wake of a crushing financial crisis, ends next February, and the government has not yet said whether it will seek fresh funding. «It seems like the country is already in the throes of negotiating (albeit in public) with the Fund for a new arrangement,» said economist Tim Ash at Bear Stearns in London. «The Fund is playing hardball with Turkey over the primary surplus target, which the market should appreciate.» Erdogan said Turkey would maintain ties with the IMF beyond February, but did not make clear whether this would be in the form of another borrowing accord. Turkey is already due to continue repaying money to the IMF well beyond next year. He said even the most powerful countries had some kind of relations with the IMF, adding, «There is no way to rule out this partnership under current world realities.» Turkish central bank head Sureyya Serdengecti said earlier yesterday he saw benefits in a further IMF deal, and that Turkey would certainly need IMF backup if European Union leaders failed in December to give a firm date for EU accession talks. Simon Quijano-Evans of Bank Austria-Creditanstalt said the markets would definitely be looking for a fresh loan package for Turkey, to help spread repayments and encourage further reforms. «Markets would not acknowledge a mere ‘on-the-paper’ agreement but would rather look for a fully-fledged standby loan program,» he said in a research note.