TURKEY: IMF may withhold standby tranche

17 November 1995

The IMF may withhold the sixth and final tranche of an SDR 610 million ($908.9 million) standby facility because of political and associated economic uncertainty, say senior Turkish officials.

In the run-up to early general elections on 24 December, Prime Minister Tansu Ciller's renewed coalition government has effectively shelved targets agreed with the IMF in the government's ecovery programme. A quarterly assessment visit by an IMF team, scheduled for November, may be cancelled, the officials say.

The accord attached to the standby facility will expire in February. Officials say the government had planned to ask for an extension. Now a decision on such a request may be left to the government which emerges from the elections. It may also be forced to introduce a new clampdown on spending, say the analysts.

A total SDR 501.5 million ($747.2 million) has so far been released from the facility first approved by the IMF in July 1994 to help with Turkey's economic crisis. The fifth tranche was released on 18 September by the IMF, broadly satisfied that the government was meeting agreed targets for budgetary management and foreign exchange rates. Two days later Ciller's coalition collapsed. Turkey plunged into a crisis of government finally resolved on 5 November with a confidence vote in a renewed coalition.

Economists say Ciller's caretaker minority administration has already started to pave its way to the elections with traditional spending to win votes. This is reflected in the renewed coalition's programme, which boasts of recent pay hikes to public sector workers, civil servants, increased relief soon for pensioners and continued subsidies for agriculture.

Such increased spending could have a deleterious impact on the government's budget performance, analysts say. This in turn would affect inflation, which annualised to end-October stood at 88.3 per cent and 79.7 per cent, respectively, in consumer and wholesale terms. The recovery programme initially targeted a rate of 40 per cent for 1995 as a whole.

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