Turkey’s Prime Minister Tansu Ciller seems to have met with some success in her recent mission to the US in search of IMF assistance. The fund’s managing director, Michel Camdessus, says he believes Turkey’s recent austerity measures are courageous and deserving of IMF support. The warm welcome for the Turkish prime minister was only a brief respite, however. She returned home to the growing tensions between secularists and the Islamic conservatives who triumphed in local elections at the end of March, and a deep economic crisis.
Camdessus has agreed to start immediate talks with the government on a stand-by arrangement. The fund says that a programme based on the principles declared by the premier would help to stabilise the economy and further Turkey’s integration into Europe – a customs union is planned in 1995 ahead of eventual full EU membership.
The package of measures announced in Ankara on 5 April was sweeping. It proposes speeding up the sale or closure of state economic enterprises (SEEs), a wage freeze, price rises of up to 100 per cent on basic goods and services, tax increases, and a reform of agricultural subsidies. The Turkish lira was devalued by 28 per cent. At the same time, the central bank will be made more autonomous from the treasury.
In her appeal to the IMF and to President Clinton, who she met briefly during her 13-17 April visit, Ciller had a positive image to exploit. Before the latest economic setbacks, Turkey was a model emerging market which had started liberalising its economy under IMF guidance as far back as 1980. The end of the cold war may have weakened Turkey’s role as the southern anchor of NATO but it has a new regional role as the chosen route for central Asian oil and gas export pipelines. Russia was among participating states in these routing agreements (MEED 22:4:94, page 20).
Turkey needs the reassurance of IMF support. The treasury’s external borrowing requirement is about $7,500 million for 1994 and international banks are reluctant to lend. The banks are worried by the foreign exchange crisis and the downgradings by US ratings agencies Standard & Poor’s and Moody’s Investor Service. The agencies cited worsening fiscal and external deficits, and the markets have since hardened against Turkish risk.
The OECD has also warned that inflation will go even higher if the public deficit is not trimmed. In 1993, the public sector borrowing requirement was 16 per cent of gross national product; inflation reached a five-year high of 73.6 per cent at the end of March. The central bank is also in a precarious position. Its reserves excluding gold fell from $6,277 million at the end of 1993 to $3,271 million by 1 April due to the cost of debt servicing and market intervention to support the lira. Turkey’s total foreign exchange reserves remain comfortable at about $16,141 million in mid-March.
Cause for concern
The balance of payments is another cause for concern. The $6,380 million current account deficit at the end of 1993 was a record. As imports surged, the trade gap widened by 76 per cent to more than $14,000 million. Officials say that growth, which hit 7.3 per cent in 1993, will work out at around 3 per cent this year, below the original target of 4.5 per cent. Critics say the economy may even contract. The austerity package demands further painful sacrifices in the hope that a surge in exports will rescue the current account.
One of the most politically sensitive sacrifices will be employment, with up to 40,000 jobs in the state sector at risk if the SEEs are closed. Rationalisation and privatisation of the state sector will please the World Bank, however. Due to lack of progress, the bank postponed the approval of a $100 million technical assistance loan towards privatisation in late March. An IMF agreement could enable the resumption of World Bank structural adjustment lending for the first time since the mid-1980s.
Privatisation is the key to the success of Ciller’s economic strategy. The state enterprises are one of the principal sources of public deficits and their sale is to be a main source of future revenues. The state Public Participation Administration (KOI) has set a target of $3,500 million in privatisation proceeds for 1994, and $18,000 million in 1995. Officials say the KOI aims to sell off 10 major SEEs partially or wholly by the end of this year together with minority shareholdings in the private sector (MEED 4:2:94, page 30).
Ciller seems to have reached a crucial political compromise on privatisation with the junior coalition partner, the Social Democratic Populist Party (SHP). Opposition from within the SHP had blocked previous privatisation decrees in the constitutional court. A draft law empowering the government to privatise by decree has now been submitted to a parliamentary commission before presentation to parliament. It allows for the accumulation of privatisation revenues in a special fund to compensate redundant workers. If it passes parliament, the government will have a free hand to move against the SEEs.
In typically flamboyant terms, Ciller described her hasty US visit as a mission to preserve Turkish secularism. The secular parties are still reeling from the strong performance of the religious party in the March local elections, when the Islamist conservative Welfare Party (RP) won control of 28 municipalities, including Ankara and Istanbul. Ciller’s many critics in business and industry blame her economic mismanagement for the widespread disillusion that prompted the surge in support for the Islamists.
The balance struck in the 1980s by President Ozal, between economic liberalism and personal religious devotion, seems to have been lost under his successors. As the first anniversary of Ozal’s death was commemorated on 17 April, supporters of his synthesis of Western and Islamic values were cowed while their Islamist opponents are increasingly confident that the tide of events is flowing in their favour. Speaking on 13 April, RP leader Necmettin Erbakan reportedly told party deputies: ‘There is no doubt that Turkey will move to RP rule and its just order. Sixty million people will decide if this transition is going to be sweet or bloody.’
Ciller has already struck out vigorously in secularism’s defence.