Turkey to renew surplus

ANKARA (Reuters) – Turkey plans to keep its primary surplus targets – which are key to its loan accord with the IMF – unchanged in 2005 from this year’s levels, economy officials said yesterday, although the agreement expires in February. Turkey is setting the consolidated budget’s primary surplus at 5 percent of gross national product (GNP) in 2005 according to the base scenario of its economic program, they told Reuters. The public sector primary surplus target for 2005 is set at 6.5 percent of GNP, meaning both targets are unchanged from levels this year, under a three-year economic program which the government is currently working on. The primary surplus targets are central to Turkey’s $19 billion accord with the International Monetary Fund, although the nature of a new deal to replace the existing accord next year is not yet clear. Government ministers have said they may cut the primary surplus target in any future deal with the IMF, which sees a large primary surplus as a guarantee that the country can continue to service and pay down its debt. Turkey’s domestic debt load stood at around $140 billion at the end of May. The primary surplus, which excludes interest payments on Turkey’s large debt stock, amounted to 74 percent of the government’s key year-end target of 20,214 trillion lira, or 5 percent of GNP, for the first six months of 2004. «The basic point of the work on the 2005 budget is a 5 percent consolidated budget primary surplus,» an economic official told Reuters. The target for the public sector primary surplus for 2005 will be set at 6.5 percent, the same official said. «The additional 1.5 percent will again come from the state companies’ revenues not included in the budget.» Options for IMF deal But officials said they are also considering how the deficit could be covered if the primary surplus target was reduced by 0.5 percentage points. «The government is working on projections on how to shoulder the cost of a possible non-lending IMF deal, and what will happen to interest rates under that circumstance,» another official said. The government says it is considering several options in future relations with the IMF when the current accord expires. They are standby, precautionary standby and non-lending monitoring deals. «The government must announce as soon as possible that it will continue with the IMF. There is no reason for waiting, and we do not have the luxury of taking risks,» an economic official said. The same official warned that if things do not progress as expected with Turkey’s bid to join the European Union or if the current account deficit remains high for the next few months, everything would be much more difficult. «Now we are in the strongest position regarding our relationship with the IMF. The format of a new agreement with the IMF should be made clear as soon as possible,» the official said. The government’s base scenario for 2005 shows that fiscal discipline would be sustained, Eczacibasi Securities’ Aysegul Aykol said. «Turkey has a large debt stock even if it has fallen. For that reason, the 6.5 percent primary surplus is very important, which should be backed by structural reforms in social security, downsizing the public sector and rehabilitation of state companies,» Aykol said.