IMF: Good start for Turkey

ANKARA – The IMF said Turkey had got off to a good start on its new $16 billion lending accord, although economic growth was proving hard to spot and more steps were needed before the fund releases further payments. The International Monetary Fund’s Turkey desk head, Juha Kahkonen, said yesterday a two-week review of the pact had shown «good progress» on structural reforms of Turkey’s economy. «A good policy performance has been reflected in an improvement in market conditions,» he said, pointing to a faster-than-expected fall in interest rates, a stronger lira and signs of a fall in inflation. But Kahkonen warned the government to resist pressure to deal with short-term concerns at the risk of endangering longer-term goals. «Deviating from this strategy to address short-term growth concerns would risk undermining confidence and indeed the program strategy itself,» he said. «These are very difficult times for Turkish citizens,» Kahkonen said. «But the government’s program is sound and will yield positive results.» The standby lending deal aims to cut inflation while returning Turkey to growth and managing a heavy debt load. Kahkonen said signs were mixed that Turkey’s crisis-wracked economy is pulling out of its deepest recession since 1945, which led to an expected 8.5-percent contraction in 2001, but he stressed that a 3-percent growth target for 2002 was still possible. «On economic growth the various indications have been more mixed, but we fully believe that the target of three percent GNP growth for the year remains feasible,» Kahkonen told reporters in a review of an inspection trip. The Turkish Treasury said in a statement that the IMF had told it that the Fund was confident Turkey’s year-end 35-percent consumer inflation target was also achievable. Consumer price inflation was 73.1 percent in February. The IMF standby pact is designed to rescue the NATO member country from a financial crisis that struck last year. Kahkonen said Turkey had met all the budgetary and monetary criteria for the first review of the program, but still had some additional steps to take before the IMF would meet to sign off on the next $1.1 billion payment from the pact, which is mainly earmarked for managing a heavy debt load. He picked out a law on debt management that needs to be passed by Parliament and action on identifying where jobs could be cut in the state sector as areas the Fund would be watching before its Executive Board meets in early April, Kahkonen said. Kahkonen also urged Turkey to keep up with an ambitious privatization program aiming to raise $1.5 billion this year. «It will also be important to accelerate privatizations. Market conditions have improved and there would now be better opportunities to privatize companies, and this is one area where there should be additional emphasis,» he said. Kahkonen declined to comment in detail on the possible impact of any US attack on Turkey’s neighbor Iraq, but he said the $16 billion deal had some leeway and that the financial cost of the September 11 attacks had been less than originally feared. «Those documents enumerate six methods of solution: settlement by discussion, arbitration, indirect talks, mediation, and include an appeal to the International Court. We accept all of them.»