ECONOMY

Renegotiation of the IMF loan is an issue in pre-election Turkey

ISTANBUL – Some parties are kicking against the traces ahead of a November 3 election, but whatever its complexion, Turkey’s next government may be effectively locked in collaboration with the IMF. The International Monetary Fund itself needs a success for its $16 billion crisis pact with Ankara after harsh criticism of its handling of the 1998 Asian financial crisis and the problems in the past year in Argentina. The United States, whose influence on the IMF is huge, sees a stable Turkey as vital to any military campaign in neighboring Iraq. And the front runner in the election, the Justice and Development Party (AKP), is seen as likely to negotiate for relatively minor revisions to the pact. «The IMF may put at risk the repayment of its outstanding loan to Turkey if it breaks the rope linking it to Ankara,» said Emin Ozturk, economist at Bender Securities. Muslim Turkey has received more than $28 billion since 1999, partly thanks to pressure from the IMF’s biggest shareholder, the United States, which sees the country as a haven of Western-style democracy on the edge of the turbulent Middle East. It has repaid $7.5 billion so far. «It is impossible to think that the IMF is entirely independent from the States. For this reason, Turkey’s strategic partnership with the States is another reason to believe that the IMF will continue to support Turkey,» Ozturk said. Ankara has made it clear to Washington it wants financial guarantees in return for air bases and other military facilities it would need for operations in Iraq. As well as wrecking tourism, a campaign could drive up interest rates again, making debt more expensive and throttling incipient growth. Many Turks see the 184-member IMF’s credibility at stake after the harsh criticism over the Asian and Argentine crises. «After the collapse in Argentina, the IMF is desperately seeking a success story and that would be Turkey,» a government official said. «So it has to continue to support Turkey.» However, the IMF has put a $1.6 billion tranche of the loan on hold. It asked Turkey last week to fulfill its obligations to secure the money. Analysts expect the IMF to await the result of next month’s elections and the formation of a new government before it acts. Turkey not Brazil Turkey faces none of the electoral hazards of Brazil, where leading parties questioned the country’s IMF pact. Indeed, bond yields here are easing significantly in growing optimism over the outcome on November 4. Poll front runner AKP, viewed with suspicion by the powerful military and markets for its Islamist roots, has soothed market fears somewhat, sending a roadshow abroad to explain policies. AKP says it would like to negotiate with the IMF to lower a primary surplus target if it comes to power. The program aims at achieving a public sector primary surplus of 6.5 percent of gross national product. This could create a dispute between the Fund and Ankara, but no one expects any break in years-old relations with the IMF. Some of the 2003 targets, such as 20 percent consumer price inflation and 5 percent growth, may be modified if the new government insists, bankers say. «The inflation target could be, for example, 23 percent, and growth might be revised up to 5.5 percent,» said a former economy official who took part in past talks with the IMF. The Republican People’s Party (CHP), the only mainstream party consistently polling above a 10 percent barrier for entry to Parliament, on the other hand, appears ready to stick with the primary surplus target.