IMF policymakers, showing they can put decisive action before words, agreed Sunday, April 29, to douse the flames of crisis in the financial hotspots of Turkey and Argentina. "During these meetings we have reached agreement in principle to support Turkey and Argentina," International Monetary Fund managing director Horst Koehler told a news conference.
"Both countries have substantially strengthened their policies and they deserve support," he said, after talks between the finance ministers of leading IMF member countries. "The remaining details of the programs will be sorted out in a few days," he promised. "And I also think that the handling of these two cases strengthens the IMF."
Both Turkey and Argentina had been the subject of earlier multi-billion dollar IMF programs that failed to prevent a slide back into crisis, and each has emerged as a test of the Fund's competence. The IMF is putting the final touches to a package of $10 billion in aid for Turkey, which was the beneficiary of an $11 billion economic program in December.
Despite the earlier support, Turkey was forced to abandon a crawling peg between the Turkish lira and the dollar on February 22, in the face of an exodus of funds following a widespread loss of confidence in the government's economic management. The financial crises, an ensuing depreciation of the currency, and the resulting price pressures upset the basis of the previous IMF-agreed anti-inflation program, and forced Turkey back into the Fund's arms.
But the decision to hand out more money to Turkey won the unanimous support of IMF finance ministers, Koehler said. There was a good chance that, "based upon an open economy, an openness to the international economy, this government will get out of the mess," the Fund boss said. "This program with the $10 billion financing is the right answer to the specific situation of Turkey."
The eventual success of the reforms would be the responsibility of Turkey, he said. "We put our contribution to it, so that it can really succeed." The IMF agreement with Argentina was necessary to allow future installments from a $40 billion crisis package already arranged by the Fund in December.
Despite that package, Argentina has been mired in a 33-month recession, and its debt burden has soared to $128 billion—almost 50 percent of annual gross domestic product. But Koehler said he was confident in the new program. "I think it will work because the policy is right. It is a policy based on growth orientation, investment, competitiveness," the IMF boss added. "I think that is what counts and what markets are going to reward. We are prepared to support this."
The IMF would also adapt its disbursements to Argentina if required, Koehler said. "If there is a need for re-phasing our disbursements, we are preparing to do that in order to really demonstrate that it is a measure of putting everything together," he stressed. "We are not bureaucratic. We are working with Minister Cavallo in a very close and productive relationship." —(AFP)
© Agence France Presse 2001
© 2001 Mena Report (www.menareport.com)