Turkey secures new IMF rescue package

Published May 16th, 2001 - 02:00 GMT

The International Monetary Fund on Tuesday, May 15, approved eight billion dollars in new loans for Turkey, paving the way for a total cash infusion this year of $15.7 billion for the crisis-embattled country. 


A source told Reuters the global lender's decision-making board unanimously voted to give the vitally needed loans its stamp of approval after the Turkish government passed laws in recent days on reforming its ramshackle banking sector and selling the state-run telephone company ― key demands the IMF stipulated before it would increase its lending. 


The approval paves the way for two billion dollars in new World Bank money, which were also agreed while the IMF was renegotiating its lending to Turkey. Turkish officials said earlier on Tuesday that $3.27 billion of an earlier IMF loan would also be available this year as well as $2.45 billion from earlier World Bank facilities, taking the total cash injection to $15.7 billion before the end of the year. 


The loans are meant to help Turkey revive its economy after a crippling financial crisis that began in its banking sector and led to the floating of the lira currency in February ― a move which has since hacked 40 percent from the lira's value. 


The new loan takes total lending commitments from the IMF to Turkey to about $19 billion since last December. 


IMF First Deputy Managing Director and Acting Chairman Stanley Fischer welcomed Turkey's strengthened economic reform program, saying its full implementation should restore financial stability and lay the groundwork for resumed growth. 


"The Turkish program aims at strengthening confidence, addressing the costs arising from the crisis by increasing the primary fiscal surplus, speeding up the reform of the banking sector, and undertaking wide-ranging structural reforms," Fischer said in a statement. 


"Decisive implementation of the program's policies, together with the availability of significant additional external support, should initiate a virtuous cycle characterized by lower interest rates, stronger public finances, and a recovery of economic activity," he added. 


The IMF said Tuesday's approval will make up to $3.8 billion immediately available. Further drawings of $1.5 billion each will be available by June 25 and July 25, respectively. Installments of about three billion dollars each will be available by September 20 and November 15. Payments are dependent on further IMF progress reviews to ensure the troubled economy is delivering on its promises of reform. 


Fischer said the success of Turkey's reform program would depend on "both determined implementation by the authorities and sustained support by the private sector." 


Earlier, Turkish Central Bank Governor Sureyya Serdengecti warned that Turkey must work hard to keep its credibility with lenders like the IMF. "Credibility is a concept that is borrowed," Serdengecti said, referring to Turkish pledges to the IMF of comprehensive economic reform in return for loans. "You borrow it, it is very easy to lose it and it takes a long time to get it back." 


Economy Minister Kemal Dervis, quoted on Tuesday as saying he would resign if the government failed to implement economic reforms, said he expected political strains over key laws to ease as the pace of legislation steadied. 


"Internal peace is perhaps Turkey's most important aim," said Dervis, who was brought into the Turkish cabinet earlier this year after a long career at the World Bank to put together the new reform agenda and negotiate new loans. 


Turkey's banking watchdog, underlining government resolve to implement bank reform, announced a timetable for curing a diseased banking system at the heart of the prolonged crisis. 


Turkey plans to use about $6.5 billion of the loans in May and June to steady the exchange rate and stabilize financial markets, something it hopes will drive interest rates lower. 


A large part of the money will be used to cover losses incurred by state banks in extending cheap loans to industry and agriculture. The losses, some $20 billion by the end of last year, put a severe burden on the financial system and helped trigger economic upheavals in February and November. 


The state banks and floundering private institutions will be a focus of Dervis's reform efforts. 

Turkey's banking watchdog said 13 banks in receivership would be sold or closed by year's end. The giant state-owned Ziraat and Halk banks would be sold off within three years. 


The agency also said private banks had pledged to increase their capital and that it would apply "timely, determined sanctions" to those which failed to honor such pledges. While the international community had agreed reluctantly to a third bailout in two years, most see the latest package as Turkey's last chance. 


Wrangling between Dervis and the communications minister from the far-right Nationalist Action Party kept markets on edge for weeks over a law to privatize landline monopoly Turk Telekom that was eventually passed at the weekend. Laws to reform the banking sector also passed this weekend. ― (Reuters, Washington) 


By Mark Egan 


© Reuters 2001

© 2001 Mena Report (www.menareport.com)

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