ECONOMY

Turkey no longer requires IMF prop

ANKARA (Reuters) – Turkey can now dispense with the International Monetary Fund loans which have helped nurse its economy back to health after the deep financial crisis of 2001, the central bank governor said yesterday. But Durmus Yilmaz said that even without a strong guiding hand from the IMF, the country must preserve political stability following last Sunday’s general election, maintain structural reforms and adhere to fiscal discipline. «It is not necessary to sign a deal including loans with the International Monetary Fund at the point we have reached today,» Yilmaz told a news conference held to unveil the bank’s quarterly inflation report. Turkey’s current $10 billion standby deal with the IMF is set to expire next May. The Islamist-rooted pro-business Justice and Development Party (AKP) government completed a $19 billion loan deal in 2005, the first IMF program Turkey has brought to an end successfully. Turkey has cut its total debt to the IMF from $23.5 billion in 2002 to $8.56 billion at the end of June. Yilmaz said Turkey still needed to maintain fiscal discipline and provide its own anchor. Turkey will be subject to continued IMF surveillance and annual reviews because it will be repaying debts to the IMF till 2009. The global lender played a key role in Turkey’s successful recovery from the deep 2001 crisis, which taught Turkey tough lessons on how to manage its economy. In Sunday’s election, the AKP was triumphant with 47 percent of the vote, which will enable it to form a single-party government. Markets have welcomed the result, which should enable the party to push ahead with its reform program. But tensions between the AKP and the secular establishment have risen after signals Foreign Minister Abdullah Gul will make a fresh bid for the presidency despite secularist opposition. «What is important for us is that political stability continues and that structural reforms are sustained,» Yilmaz said. «Rules on the fiscal discipline should be set and implemented in the coming period even with or without the IMF,» he added. Yilmaz said it would be no surprise if Turkey’s current account deficit grew in the second half, but that in 2007 as a whole it would be lower as a proportion of gross national product than a year ago. The current account deficit, a major weak spot of Turkey’s fast-growing economy, rose to 7.9 percent of gross domestic product in 2006 from only 0.8 percent in 2002. «It will not be surprising that the current account deficit shows a rising trend in the second half of 2007,» he said. Yilmaz also stated the bank saw a slowdown in service prices and an improvement in domestic demand. The central bank expects the consumer price index to show a gradual decline in the third quarter, he said, as the bank tried to approach to a year-end 4 percent target. Last month, CPI fell 0.24 percent, for an annual increase of 8.60 percent. Yilmaz said if interest rates fell in the fourth quarter, he saw inflation at 5.1-6.9 percent at end-2007 and 1.5-4.9 percent at end-2008. However, he said this should not be understood to mean interest rates would be cut in October. Yilmaz also warned that the government would fail to meet a key 6.5 percent primary surplus target if it does not take measures to compensate for a spending overrun earlier this year.