Turkey completes IMF stand-by program, $3.65 bln released

The IMF executive board had demanded the Turkish government undertake in exchange for the credit. It particularly praised Turkey's social security and tax reforms.

IMF said it had not received any word whether the government would seek another IMF deal. Turkish officials have ruled out the possibility of a new stand-by agreement, but the post-program monitoring will start automaticaly.

"The government has not yet communicated to us its decision on its preference for the future course for Turkey-IMF relations," the IMF's mission chief to Turkey, Lorenzo Giorgianni, told a conference call with reporters. "I'm sure the government is considering their options carefully."

"It is right the government is weighing all the options it has to buy insurance and to anchor its policies, and whether they will do so in the context of a fund program or in the context of other more home-grown framework, it will be fine, provided that good policies are implemented."

Turkey and the IMF signed the stand-by arrangement on May 11, 2005. It replaced a three-year IMF agreement in 2001 that enabled Ankara to overcome a severe financial crisis. Turkey revealed Friday its letter of intent sent to IMF late April.   Â

Those options, he said, may involve a so-called non-disbursing loan program, or a period of enhanced economic surveillance that includes twice-yearly IMF assessments.

Turkey has borrowed $45.8 billion from the IMF since the financial crisis in 2001 and 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.

Addressing Turkey's ability to proceed with an IMF program amid heightened external financing risks and rising inflation, Giorgianni said the key was maintaining macroeconomic discipline and advancing structural reforms. "If this is done with or without the IMF, Turkey will continue to enjoy economic success in the period ahead," he said.

 

STRAUSS-KAHN'S STATEMENT

Giorgianni said the political uncertainty in Turkey "puts a premium on discipline policies and continued reforms to secure the confidence of investors going forward".

The closure case against the ruling AKP, and after a short while a separate investigation targeted the people oppose to the AKP had raised tension in Turkey.

He said the country had made progress to shock-proof its economy but it now faced "very difficult and unusual circumstances" amid the tighter credit markets, higher global energy and food costs, in addition to domestic political problems.

The IMF's managing director, Dominique Strauss-Kahn, in a statement, urged Turkey to respond promptly to broadening price pressures by raising interest rates "and avoid lifting them until inflation is back on a declining path."

He also called on the authorities to formalize Turkey's medium-term fiscal program by adopting an "explicit" fiscal rule.

"Looking ahead, Turkey's challenge will be to press forward on the reform path to further entrench macroeconomic stability and decisively lift potential growth to facilitate convergence toward EU income levels," Strauss-Kahn.

Last week Turkey presented a five-year economic plan that envisages a primary budget surplus of 3.5 percent of gross domestic product this year, falling to 2.4 percent of GDP by 2012.