Ambitious targets set out in the government’s letter of intent to the IMF have received a mixed reaction from business and financial circles.
The government has said it will reduce the inflation rate to levels not seen in more than a decade, cut the budget deficit, eliminate the trade deficit and rebuild its depleted foreign exchange reserves.
The letter of intent is to be studied by the IMF executive board in early July (MEED 24:6:94, page 12). Its main targets are:
Inflation will be reduced to 20 per cent on an annualised basis at end- 1995 from more than 100 per cent at the end of May 1994.
The current account will be brought into approximate balance in 1994 and 1995 compared with the record deficit of $6,380 million in 1993, equivalent to 5.3 per cent of gross national product (GNP).
The public sector borrowing requirement will be reduced to 8.6 per cent of GNP in 1994, and 5.5 per cent in 1995, compared with 17 per cent in 1993.
Growth will be zero this year, and 3.6 per cent in 1995, compared with 7.3 per cent in 1993.
Foreign exchange reserves will increase by $1,000 million in the last nine months of 1994, and by $2,000 million in 1995.
Bankers say current trends augur well for the partial if not total achievement of these targets. The budget deficit on a monthly basis shrank to only TL 2 million million compared with TL 4.8 million million in April, TL 32.1 million million in March, and TL 14.8 million million in February. The government says that the May budget deficit net of interest payments actually produced a surplus of TL 6.3 million million.
The central bank has already rebuilt its foreign exchange reserves to a level expected to be about $4,500 million at the end of June, while also meeting heavy external debt servicing dues totalling around $4,000 million in the first half, bankers say. They say it seems likely too that the government will be able to meet a further $3,500 million-4,000 million due in the second half of 1994.
Imports have been dampened by recession. The end-1994 target is $22,000 million. Export growth of 10 per cent in 1994, with a real takeoff in 1995 and 1996, is forecast.
Since the start of the year, the lira has depreciated by more than 50 per cent against the dollar, but currently has stabilised at about $1=TL 32,000. Recent public issues of three month treasury bonds at a net period interest rate of 50 per cent have drawn demand away from foreign exchange. Subsequent issues at lower rates have met with eager demand from both the public and financial institutions, indicating a restoration at least temporarily of public confidence in government paper.
However, bankers and business people warn that Prime Minister Tansu Ciller still faces an uphill struggle in pushing through austerity legislation.
Misgivings also exist in the World Bank. The ruling coalition has yet to bite the bullet on structural adjustment, according to a source close to the World Bank. ‘The two sides are just mapping out the terrain,’ says the source.
The World Bank has approved a $100 million technical assistance loan towards privatisation, which was held up before the March elections for lack of progress with reforms. But now it will want to see concrete evidence of action against loss-making state enterprises like steelworks and coal mines, and reform of the social security system and agricultural crop subsidies. ‘They seem to think that all they have to do is to get IMF approval,’ adds the source.