No need of IMF money

ANKARA – Turkey is no longer dependent on International Monetary Fund loans but will still need a follow-up agreement to sustain confidence in its economy as its 19th standby agreement is set to expire next year. The Fund has praised Turkey’s economic performance, but recently urged a final push on lowering inflation and on structural reforms to raise growth rates from around 6 percent to levels seen in the fastest-growing emerging nations such as China. A favorable global liquidity environment has supported Turkey this year and shielded its financial markets from domestic political turbulence. Turkey is yet to decide what kind of a follow-up deal it will pursue with the IMF, but the next government – after elections on July 22 – is expected to opt for a precautionary standby or a staff-monitored program rather than a standby accord with strict benchmarks, reviews and performance criteria. «Turkey doesn’t need the IMF money. As long as the global liquidity conditions continue like this, we don’t need extra money to come into Turkey with a new accord,» said Garanti Bank chief economist Pelin Yenigun Dilek. Financial markets will consider it acceptable to go ahead without IMF cash support, one trader said. «Everyone in the market knows that Turkey does not need the IMF money. Turkey can handle its own borrowing,» said the trader, who declined to be named. Saving measures, spending cuts and an ambitious 6.5 percent primary surplus have been a key chunk of the existing program, fueling popular anger toward the IMF. Analysts believe it would be useful to sign a deal with the IMF and sustain investor confidence in Turkey’s economy in the coming years, even if this is not a borrowing deal. «It is true that the government’s net foreign debt ratio has fallen but I believe that Turkey still needs to implement tight fiscal policies and get the IMF’s seal of approval,» said Credit Suisse emerging markets strategist Berna Bayazitoglu. Turkey cut the ratio of public sector net debt stock to gross national product to 44.8 percent last year from 78.4 percent in 2002. The ratio for the net foreign debt stock fell to 27.4 percent from 49.0 percent in the same period. Anchor The IMF has become an even more important anchor for Turkey as the country’s accession talks with the European Union have slowed down and the new government will have to take urgent decisions on IMF ties, a senior economic official said. «Turkey needs to avoid decisions which will set it against the IMF. If the current attitude continues, we may not even have an IMF anchor as we know it now,» the official said. Shrugging off IMF misgivings, the government cut value-added tax on food and the key tourism sector on Wednesday. The IMF has urged Ankara to control spending and to avoid ad hoc tax cuts. Turkey will be subject to continued International Monetary Fund surveillance and annual reviews once a year anyway, whether it renews its accord or not, because it will be repaying debts to the IMF till 2009. «We believe a staff-monitored program would be good for the markets… Receiving the IMF’s technical support in designing a new program will greatly benefit Turkey,» said Dilek. A country agrees to meet certain conditions for use of IMF resources under a precautionary arrangement, although it does not draw loans from the Fund. Analysts say Turkey needs a new kind of program focusing on micro-economic reforms to enhance its industrial competitiveness rather than the current exclusive emphasis on fiscal discipline and anti-inflation measures. The global lender played a key role in Turkey’s successful recovery from a deep crisis in 2001, which taught Turkey tough lessons on how to correctly manage its economy. In return, Turkey has served as the fund’s poster child after many Latin American countries such as benchmark emerging market Brazil paid off their IMF debt early. Turkey cut down its IMF debt from $23.5 billion in 2002 to around $9 billion now, the government said recently.

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