IMF, Turkey in agreement

ANKARA – Turkey and the International Monetary Fund (IMF) have agreed on the general lines of a letter of intent in the latest review of a $19 billion loan accord, which Turkey expects to complete by early August, Economy Minister Ali Babacan said yesterday. «Agreement was reached on the general lines of the draft letter of intent…we expect to complete the review before the second week of August,» Babacan told a news conference after Turkish officials completed talks with a visiting IMF team on the eighth review of the accord earlier yesterday. The news conference had little impact on Turkish financial markets, analysts said. The main share index ended down 0.19 percent, the lira firmed slightly to 1,484,000 against the dollar and bond yields fell. IMF Turkey desk chief Reza Moghadam told the news conference he saw Turkey beating its IMF-agreed year-end growth and inflation targets after strong data so far this year. «On the macroeconomic front, the achievement of single-digit inflation is a truly impressive achievement for Turkey. Growth is strong… It looks likely the program targets will be met and exceeded, both on the inflation and growth fronts,» he said. Turkey is currently targeting 5 percent economic growth and 12 percent inflation for consumer and wholesale prices by end-2004. Turkey’s current standby accord expires in February 2005 and the talks included discussion of how relations between Ankara and the IMF will continue when the agreement expires. Babacan said the government was working on a program of economic targets, policies and structural reforms for the next three years. He did not indicate what role the IMF would have in that period or whether there would be further financial support. «There was no mention of what this program would look like or when it would be decided on. This is disappointing for markets,» said Simon Quijano-Evans, an analyst at Bank Austria Creditanstalt in Vienna. The current pact was agreed upon after a major financial crisis that peaked in 2001 and triggered a deep recession. Moghadam, whose team had originally been expected to leave Turkey on Saturday after beginning the review on June 8, told the news conference Ankara may delay the repayment of some of its debts to the IMF by one year but that it had not yet made such a request. Babacan said any delay of its repayments depended on the Treasury’s cash flows and that no final decision had been made. Moghadam said completion of the current review, expected to lead to the release of a fresh $660 million loan tranche, was dependent on approval by the fund’s board. The IMF expects Turkey to complete legal changes for the merger of state-run Halkbank and the failed Pamukbank before approving the review, Babacan said. Turkey has promised to merge the two banks ahead of the privatization of Halkbank, one of its IMF pledges. Pamukbank has been in state receivership since regulators seized it in 2002.