The IMF executive board will meet soon to debate a staff report calling for a broad stabiisation programme for the economy aiming at rapid and sustainable growth and curbing high inflation. The report calls for urgent action on fiscal policy integrated with structural reforms.
The report was drawn up after a May visit by an IMF team, which was unable to discuss a new stand-by programme at the time because of political and related economic uncertainty. So far, the Islamist-led coalition headed by Prime Minister Necmettin Erbakan has yet to make any overt moves towards seeking renewed IMF assistance. The last IMF facility and programme lapsed in political turbulence before end of December elections.
The report says significant progress has been lacking on key structural measures like privatisation, and reform of taxation, pensions and local administrations, according to Reuters. However, the report adds that strong support is likely from the international community if and when such measures are introduced.
The report suggests a ‘nominal anchor’ should be used to peg the lira’s exchange rate to increase the feasibility of any austerity package. It also urges the government to beef up banking supervision against dangers apparent in 1994’s economic crisis like insufficient capitalisation, lending to related parties, and excessive net open positions in foreign exchange.