IMF prepared to retain role in Turkish economy, says report

IMF prepared to retain role in Turkish economy, says report
The International Monetary Fund (IMF) executive board has agreed that the fund is ready to continue playing a role in supporting Turkey's efforts to cement economic stability and tackle its remaining vulnerabilities, a report by the IMF noted.

In its Ex Post Assessment of Longer-Term Program Engagement (EPA) and the Ex Post Evaluation of Exceptional Access (EPE) for Turkey, which it completed on Friday but released on Wednesday evening, the IMF said long-term program engagement was instrumental for Turkey in maintaining good economic performance.
Many board members noted in the EPA that the IMF should be prepared to explore all available options for future IMF engagement, and several highlighted the importance of close consultations on policy targets with the fund. Some board members saw merit in continued IMF program engagement with Turkey in the current difficult global financial environment. However, all of the board members agreed that political commitment to sound policies and reform will remain the key ingredient to ensuring future economic success, regardless of the form of fund engagement.
Turkey and the IMF will now be able to start discussions to determine the future course of relations with each other. Turkey is likely to start a precautionary stand-by agreement with the fund, the talks for which have been under way for some time. A precautionary stand-by deal between Turkey and the IMF is expected to alleviate the concerns of investors and attract a greater volume of foreign investment. It will include a loan, but Turkey will have the option not to use it unless it becomes necessary. Noting that the IMF is still an institution which provides funds with appropriate terms for Turkey, analysts say Turkey will have the opportunity to take out immediate loans from the IMF in the event of a lack of liquidity.
The EPA noted that following the deep crisis and recession in 2001 that marked the end of the first stand-by agreements started in 1999, economic performance improved sharply despite the shaky political atmosphere during that period. Strong performance was maintained in succeeding years, the assessment stated, pointing in particular to the strong economic growth from 2002 onward, declining inflation and public debt ratios and the strengthening banking system. Despite these favorable developments, however, the EPA noted that "considerable external vulnerabilities remain owing to a large and widening current account deficit."
The EPA stated that the IMF's policy recommendations had been quite suited to Turkey's needs and unique conditions. Still the report noted that the path leading to Turkey's remarkable economic transformation had not been a smooth one. Particularly the 1999 program saw slippages in policy implementation and adverse external developments. In addition, politicians were not very successful in creating adjustment policies in accordance with the rapidly changing conditions of the time. But the other two agreements -- in 2002 and 2005 -- ended more or less yielding all the desired outcomes, the EPA noted.
Many board members were of the view that the exchange rate-based stabilization program did not leave a margin for error and ultimately was not adequately supported by fiscal policy and banking sector reform. The failure of the 1999 program and the success of the 2002 and 2005 programs "demonstrated clearly the importance of sound but flexible program design, as well as the crucial role of strong program ownership and political will to enable implementation of complex policies and reforms."
The EPA concludes by noting that Turkey still faces challenges to entrench macroeconomic stability. It foresees the continuation of tight fiscal policies to reduce public debt and a renewed commitment by Turkey to a serious disinflation process. Turkey would also benefit from further progress in structural reforms, especially in the fiscal area, the report added. The EPA also encouraged the continued implementation of the financial sector policies recommended in the 2007 Financial System Stability Assessment.
Minister: No IMF program is as effective as a reformist government
Speaking to the Anatolia news agency yesterday, Economy Minister Mehmet ?im?ek said the IMF programs have so far helped the nation to clear economic hurdles, but that no program with the IMF would be effective enough to replace a reformist government.
Sharing his assessments of the EPA and the EPE by the IMF executive board, he noted that the last two programs reached a delicate success in attaining the targets, noting that this outcome was doubtlessly a product of the government's commitment and its skill in implementing the right policies to accompany the provisions of the stand-by agreements.
"Turkey had initiated 17 stand-by agreement programs with the IMF previously, and none of these had brought about permanent results," Şimşek told Anatolia.