TURKEY: IMF approval for standby tranche

02 December 1994

The release of a second SDR 75 million ($125 million) tranche of a $742 million stand-by facility was approved by an IMF board meeting on 18 November. The meeting found that the government had broadly achieved the quarterly targets pledged in its letter of intent for the standby facility approved in July (MEED 22:7:94).

'The board's deliberations have given strong support and encouragement to Turkey,' Bulent Ozgen, general director of foreign relations at the treasury, told MEED on 23 November. The approval was also a signal to the outside world of an independent acknowledgement of economic recovery, he added.

The IMF board found that the government had met the relevant performance criteria for the third quarter. The accumulated budget deficit at the end of September amounted to TL 86 million million ($2,450 million), well within the target of TL 96 million million ($2,627 million). The central bank's reserves showed an increase of more than $3,000 million, far more than the pledged $300 million. Similarly, the absence of any significant fresh foreign borrowing more than satisfied the IMF's criteria.

Performance on the budget deficit and foreign exchange reserves has continued to be well above target. On the external account, the trade deficit has narrowed considerably due to a slump in import demand caused by economic contraction arising from the crisis (see table). The current account was in surplus by $1,599 million in the first eight months of the year compared with a deficit of $4,371 million in the same period of 1993.

However, the IMF is understood to have reservations about a probable target overrun in the budget deficit for the year as a whole by around TL 30 million million ($821 million) to TL 139 million million ($3,804 million). An upturn in the inflation rate to 116 per cent in annualised consumer terms at end-October, after a fall over the summer, is also cause for concern.

Analysts say a more critical point will be reached when release of the third tranche is due in February. The standby facility is being disbursed in five tranches, the last in summer 1995. Three equal intervening disbursements are scheduled between the first and last tranches valued at about $230 million each.

Senior treasury officials say negotiations are continuing as well for a World Bank structural adjustment loan valued at about $400 million, which is expected to be another signal of assurance internationally. So far, World Bank approval for the loan has been held up by slow progress in economic restructuring, chiefly privatisation. However, a fundamental privatisation law was expected to pass parliament in the week ending 25 November.

Both the treasury and domestic institutions have refrained from fresh borrowing during 1994. Even if available, it would have proved too expensive from international markets made wary by the economic crisis and successive risk downgrades by US and Japanese ratings agencies. The failure of an attempted syndication by the state Turk Eximbank in September hindered the restoration of confidence in the international markets as well, say bankers.

But the treasury by itself may now approach the international markets in early 1995 for a new loan to set an acceptable benchmark interest rate for Turkish risk, say officials.

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