Turkey announced Wednesday, December 6, a $10 billion IMF rescue package to save it from financial turmoil in return for speeding up reform of troubled banks. The news sent the stock market soaring.
The International Monetary Fund package included $7.5 billion (8.5 billion euros) in emergency funds from the Supplemental Reserve Facility for countries facing short term financial crises.
Another $2.9 billion was made available under an existing standby agreement with the IMF.
"Talks over additional financial resources with the IMF to support a strengthened economic program have ended in full agreement," Prime Minister Bulent Ecevit told a news conference.
The Istanbul stock exchange's national index, which had slumped by 44 percent since mid-November, soared 1,632 points, or 18.6 percent, to close the day at 10,387 points.
Stocks had already soared a record 19.5-percent rise the previous day on hopes for IMF aid.
Market interest rates had jumped to more than 1,000 percent in the past week as the financial markets suffered from a cash crunch triggered by a loss of confidence in banks.
IMF European director Michael Deppler said an IMF board meeting on December would be asked for credits of slightly more than $10 billion (11.3 billion euros).
IMF managing director Horst Koehler would request the first instalment of $2.8 billion for release on the day of the meeting, Deppler said.
The size of the package was appropriate given Turkey's losses during the liquidity squeeze and the cost of a planned rehabilitation of bailed-out banks, said a foreign banking expert.
"All the banking problems of Turkey, when put together, make a hole of some $40 billion," said the analyst, who declined to be named.
In return for the rescue, the government promised to strengthen its reforms, especially in the overcrowded bank sector.
Weak banks had been crushed by the liquidity squeeze when the authorities used a high exchange rate and tight monetary policy to slash inflation, the expert said. In the short term, the funding is important to shore up the exchange rate of the lira and to halt the outflow of capital, and also for long-term restructuring.
External, long-term capital used for restructuring, to improve the function, or "supply side" of the economy, would increase productivity and would pose less or little inflationary pressures, explained OECD expert Robert Price.
Turkey's prime minister said Ankara would still guarantee bank depositors and creditors but refused to elaborate on planned additional measures for the reform of the sector.
The government would speed up privatization, a long-delayed condition of a $4 billion, three-year stand-by program already agreed with the the IMF to fund budget deficit and depleted hard currency reserves.
Turkey's treasury undersecretary Selcuk Demiralp described the banking sector reform as the "most important step", adding that it would open up foreign credit lines to Turkish banks.
Disbank research director Haluk Burumcekci said at least 15 banks, one fifth of the current number, needed to be eliminated.
"There is already a trend towards kicking troubled banks out. We need natural selection," Burumcekci told AFP. "But the guarantee the government gave today means that it will take over their management rather than letting them go bankrupt," he added.
A foreign economist, who declined to be named, said there were widespread expectations that 10 minor banks were next in line for a government bail-out.
Under the IMF deal, Turkey had promised to clean up its corruption-ravaged banking system in which many institutions were allegedly given licences in return for favors for politicians.
Earlier Wednesday, Turkey's banking watchdog banned a troubled private bank and bailed out another, Demirbank, bringing to 11 the number of banks handed over to the management of a central bank fund since last year.
Since the banking operation began, Turkish authorities have also launched criminal investigations against some bank directors, including the nephew of former president Suleyman Demirel.
Last month, Turkey's banking watchdog said that it would complete the sale of eight of the banks by the end of April after rehabilitating them at a cost of $6.1 billion.
"The number of bailed-out banks is growing. The rehabilitation process will be very costly," Burumcekci said.
"For instance, Demirbank, which was bailed out today, was Turkey's ninth biggest bank. Its rehabilitation will need resources proportional to its size," he added.
One foreign expert said Turkey needed five-to-10 years to reform the banking sector.
Turkey stressed it was determined to reach end 2001 inflation targets of 12 percent in consumer prices and 10 percent in wholesale prices.
In November, inflation running at 43.8 percent for consumer prices and 39.1 percent for wholesale prices.—(AFP)
© Agence France Presse 2000
© 2000 Mena Report (www.menareport.com)