IMF criticizes Turkey

WASHINGTON (Reuters) – The International Monetary Fund yesterday criticized Turkey’s decision this week to slash value-added tax on textile products and it said was a departure from the country’s existing economic program with the Fund. «We consider the sectoral VAT rate cut to be a departure from the objectives of (the) Fund-supported program to broaden tax bases and improve collection efforts so as to allow lower tax rates for everybody and increased investment spending,» an IMF spokesperson said in response to a question. Turkey said on Tuesday it was cutting VAT on textile products by over half following intense pressure from textile manufacturers who say thousands of jobs are at risk amid a flow of cheap Chinese goods, high energy costs and an overvalued lira. «As regards the textile sector, we understand the difficulties, which in many ways are similar to those experienced by other countries following the elimination of international quotas,» the spokesperson said. «In our view, however, the VAT rate cut will delay the transition of the sector toward producing the more competitive range of products that need to take place in Turkey, as elsewhere, to deal with the new competitive realities… We have made these points with the authorities and are discussing with them the implications of the measure.» Performance reviews of the IMF’s $10 billion standby accord with Turkey were delayed last year due to holdups in structural reforms, including social security.