Although Turkey’s last standby expired in May last year, both sides have prolonged the ball game long enough. While Turkey chose to postpone talks due to the March 29 local elections, it also stepped over fiscal discipline that the IMF had long been calling for. The government has been pushing for a flexible accord, which would not squeeze tight the national budget. However, that does not seem to be a part of the IMF’s agenda. The fund’s push for its current Turkey desk chief, Rachel Van Elkan, to consult with former Turkey desk chiefs Lorenzo Giorgianni, Carlo Cottarelli and Juha Kahkonen is part of a plan to make sure the fund would be able get a tight hold on a healthier accord with Turkey, which would steer the country to focus on structural reforms and a tight fiscal policy. According to the fund, Turkey has been displaying a worsening spending discipline since May 2008. Things got even worse as the government loosened the strings of its purse especially before the local elections. A draft letter of intent requested by the fund from the government, as you may read in our Economic Review headline story today, aims to make sure that such loosening would never happen again.
The IMF’s dedication to sign a new deal with Turkey is a sign of how valuable the country is for the fund. Meanwhile, many circles, including Turkey’s Central Bank, and some business leaders are pushing the government to sign a new IMF agreement as soon as possible, in wake of worsening economic data. Official figures showed the economy shrank 6.2 percent in the fourth quarter last year. It was the first contraction since the economy shrank nearly 10 percent in the fourth quarter of 2001.
The IMF estimates a 5.1 percent contraction in Turkish gross domestic product this year, a prediction that contrasts with the government’s target of a contraction of 3.6 percent. To counter the worsening outlook, the Central Bank cut its key interest rate to 9.75 percent in its latest Monetary Policy Committee meeting.
However, not everyone’s hopes are tied to the IMF. Very recently, a chairman of a Bursa-based company delivered a speech that could be perceived as reflecting the opinion of many Turkish citizens. The majority of countries that have signed loan deals with the IMF have not been able to get back on their feet again, Bülent Parlamış, chairman of Parlamış Holding, claimed last week, as reported by the Economic Review. "Since its foundation in 1946, the IMF has been launching programs for many countries and not many of them have been successful," Parlamış was saying.
These words constitute the other side of the coin, as they reflect the overall sentiment in the public against IMF programs.