IMF urges fiscal control in Turkey

ANKARA – The International Monetary Fund said Turkey needs to stick to fiscal discipline while the country studies options on a new deal with the fund. The IMF approved a final review under Turkey’s $10 billion loan program on Friday, a day before its expiry. The Turkish government has not yet advised the fund what it wants by way of a follow-up deal, the IMF’s Turkey desk chief Lorenzo Giorgianni said in a CNBC-e interview broadcast yesterday. Giorgianni said that the Turkish government was seriously studying all options but he stressed that reaching a decision would take time. «Let me first say that we have not yet received from the government their view on the preference for the format of the future relationship between Turkey and IMF,» he said. The Justice and Development Party (AKP) government has not commented publicly on what kind of deal it will seek after its 19th standby accord with the IMF expired on May 10. Giorgianni said that a continuation of macroeconomic discipline with or without the IMF was key for Turkey. He added that investors would reward good economic policies by making new investments. The IMF-backed economic program in Turkey was successful, Giorgianni said. «The program has worked well in boosting confidence, attracting capital inflow and entering (a period of) high growth in the past,» he said. Call for discipline Turkey needed to stick to its revised economic program goals and maintain macroeconomic discipline, he said. Giorgianni also said the reforms would be important at a time of rising inflation and slowing growth. He said sticking to fiscal discipline in the past created room for cutting primary surplus goals, but Turkey needs to adhere to the new goals. The Turkish government has cut its key target of total public sector primary surplus, which excludes interest payments on government debt, to 3.5 percent this year from 4.2 percent, in order to stimulate a slowing economy. Turkish economic growth, which stood at 4.5 percent last year after averaging 7.4 percent a year from 2002 to 2006, was forecast at 4 percent this year, Giorgianni said. He also said he expected the inflation rate to come in below 10 percent for 2008. Turkish annual inflation is hovering near 10 percent, and the government has said it forecasts growth of 4.5 percent, instead of an initial target of 5.5 percent. Economy Minister Mehmet Simsek has said a new standby agreement with the IMF was not necessary as Turkey no longer needs IMF cash. Many economists have said Turkey might need IMF financing because the country is heavily reliant on external financing and is particularly vulnerable to global credit market tightening. Turkey is expected to choose either a precautionary standby deal with access to funding or a less stringent post-program monitoring deal with no access to IMF loans. The country’s economy is far stronger than when it started its $10 billion loan deal three years ago, Giorgianni said, adding that the recent growth rates were the highest in modern Turkish history. Turkey was the fund’s last major borrower from a string of crises in emerging economies including Brazil and Argentina, which repaid their IMF debt ahead of schedule.