New IMF lending for Turkey expected after controversial liberalization of tobacco sector

ANKARA (Reuters) – Turkey’s Parliament approved a controversial law liberalizing the tobacco sector late on Thursday in a move that should ease the way for the government to win vital new lending from the International Monetary Fund (IMF). The tobacco reform law, pledged to the IMF last year in return for crisis loans, was delayed after a minister refused to sign it and the president vetoed it last July. Parliament approved the law unchanged on Thursday night. Under Turkey’s constitution, the president cannot veto the same law twice if Parliament approves it a second time with no changes. The tobacco law aims to liberalize the sector, cutting subsidies and opening the market to foreign investment. The reforms would end the requirement for state monopoly Tekel to buy far more tobacco from farmers than it needs and would introduce measures to encourage farmers who depend on tobacco to shift to new crops. It also aims at eventually privatizing the monopoly and liberalizing the tobacco and alcohol markets. Many in Turkey have opposed the law for the upheaval it will cause farmers and for allegedly allowing favorable access to foreign cigarette makers. However, the IMF says it is necessary as part of a package of reforms to heal Turkey’s public finances. Tekel has run up accumulated duty losses of over 2,000 trillion lira ($1.42 billion) from its compulsory purchases of tobacco. The government forced state bodies to buy from farmers or issue cheap loans but never made good on the losses. Turkey is currently implementing a $19 billion IMF-backed economic program and is in negotiations for a new three-year standby accord that would bring an additional $10 billion of loans this year. The government has promised to pass the reforms necessary to win the new funding by January 15. Other reforms include two draft laws on public procurement that would overhaul the system of state tenders and improve tender and payment procedures in the privatization program, which are seen as key anti-corruption measures.

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