A $400 million-450 million one-year standby facility could be agreed by the IMF by July, according to the leader of an IMF team in Ankara. A delayed World Bank loan of $100 million towards privatisation has also been approved (see below).
The IMF team started talks in the first week of May about a facility to help the government out of the economic crisis. However, team leader Thomas Reichmann cautioned on 8 May that problems still remain, though none appear insurmountable. The team has been reviewing the latest economic statistics in the light of the 5 April austerity package introduced by Prime Minister Tansu Ciller. Reichmann endorsed the broad objectives of fiscal needs and structural reform in the package, but said further discussion is needed on detailed policy targets.
The standby loan would amount to about half of Turkey’s relatively small IMF quota of SDR 640 million ($900 million), Reichmann said. Half the funds would be disbursed straight after final agreement and board approval, and the remainder in four equal tranches over the following 12 months.
The funds will not themselves go far towards the government’s immediate external financing requirement. However, they might be the catalyst for Turkey to return to credibility in the international markets.
Despite perennial fiscal deficits, the economy and productive infrastructure are basically sound, Reichmann said. The economy could return to growth if the government addresses the structural weaknesses behind the deficits.
Structural adjustment lending from the World Bank will dovetail with the stand-by facility, said Reichmann. But Turkey will have to reach agreement with the IMF before any structural adjustment lending could be agreed, said the World Bank resident representative in Ankara, Frederick Temple, on 5 May.
The early-April austerity package seeks to raise $3,500 million from accelerated privatisation in 1994. It also includes additional taxes, and price rises of up to 100 per cent for basic goods and services. This largely explains the soaring annualised consumer prices inflation rate at end-April of 107.3 per cent. However, critics say the package did not address two key problems. First, the government has serious difficulties meeting current payments and debt servicing obligations. Second, the package did not halt the turmoil in the financial markets which has led to the collapse of three small trade banks and a leading brokerage house.
In a bid to increase confidence in the banking system, Ciller announced on 5 May that the government will guarantee all savings deposits in lira and foreign currency. This followed a late-April amendment appended to a new central bank autonomy law permitting the central bank to rescue ailing institutions.