WASHINGTON - International Monetary Fund (IMF) Turkey Desk Chief Reza Moghadam said on Saturday that the success of Turkey's economic program belonged to whole Turkey with its people, government and all related institutions.
Moghadam had a conference call after IMF Executive Board completed the Seventh Review under the Stand-By Arrangement with Turkey and released 495 million dollars of new loan tranche. He said that Turkish government would decide in the middle of this year how relations between Turkey and IMF would be carried on after the existing Stand-By Arrangement which is envisioned to be completed on February 3, 2005.
Moghadam said that a recovery could be expected in level of income and life standards of people within a time in low-level inflation milieu which was gained with the success of the program.
Moghadam said, ''in terms of relations with the Fund next year, I think this is a decision for the Turkish authorities. Ultimately, what matters is the policies that are pursued, whether within or outside the Fund program. As you know, Turkey has been a funding member of the IMF, and under any circumstances, there will be very close cooperation. And in any case, at a minimum, even if there is no program, there will be post-program monitoring because Turkey's access to Fund resources are very high. The decision on future relations with the Fund, the authorities have said that they will try and make a decision by the middle of the year. So that was not a focus of this review.''
When asked whether Turkey would need additional IMF fund after Stand-By, Moghadam said, ''Let me just reiterate again that it is premature to speculate about the relations with the Fund after this program. Turkey is a member of the IMF. It can request access to fund resources like any other member can, and it is too early to speculate about the exact form of the relationship. And I think all of the possibilities are open regarding the form of the relationship. It is a decision they need to consider, and it is the government which needs to make that decision not the IMF.''
Moghadam said, ''as you know, the economic performance in Turkey has been very impressive. The Fund-supported program has been very successful. Economic growth has exceeded program targets--this is for the second year--in 2003, and growth prospects are promising at the moment. Interest rates, both nominal and real rates, have declined sharply. The outlook for debt sustainability has improved, and inflation, importantly, has seen a very impressive decline and has reached its lowest level in a generation.''
''In terms of policy issues, obviously the fiscal policy has played a key role in terms of underpinning macroeconomic indicators and confidence. And the commitment to the 6.5 percent of GNP in 2004 and the measures that have been taken to ensure that it is delivered this year, despite slippages early in the year, as you are aware, because of the decision to increase the minimum wage and the pensions and the associated fiscal costs of those, despite those policy slippages, measures have been taken to put the primary surplus back on track for the 6.5 this year,'' noted Moghadam.
Moghadam said, ''There have been two significant improvements: One, the reserve buildup has been very successful. As you know, the central bank purchased 10 billion U.S. dollars last year and they have continued to make purchases and add to its reserves this year. The Treasury has been able to reduce its exposure to affect denominated debt, and it has been able to increase its maturity profile of the debt. So significant improvements have been made in that regard which, in a way, reduce the vulnerabilities of the country, and the access to international markets has been good. As you probably know, Turkey has secured more than half of the planned borrowing from the international market for this year already, and we are only three months through the year.''
''If you go back about a year, just before the Iraq conflict, there was a lot of concern. And if you go back and look at the various economic indicators, for example, you see that inflation and interest rates came under pressure. I think, again, if you go back and if you judge the success of the Fund-supported program, one issue which strikes you is the resilience of the Turkish economy this time around in view of the Iraq conflict. The economic variables were resilient, and they recovered very quickly. For example, if you look at the exchange rate strengthened very rapidly after last March, and the data has now been released for growth, for example, last year which was very resilient. There was some effect in the second quarter of last year when the conflict was at its height, but the growth resumed strongly after it. And the decline in inflation and the decline in interest rates continued strongly after that. So, in a way, the resilience of Turkey to the Iraq conflict has been rather reassuring in terms of illustrating how the economy can now cope with shock,'' noted Moghadam.
Regarding unemployment issue, Moghadam said, ''the unemployment rate has come down a little bit, but it is still quite high. But it is also difficult to gauge the exact level of unemployment in Turkey for two reasons. One, there is a discouraged worker effect, and some people drop out of the workforce, which means that there may be some higher underlying unemployment than it appears. And, secondly, the unregistered economy, everybody points out, is very large in Turkey, which means there may be factors the other way. There may be people who are employed but that does not show in the official statistics. Now, because the population growth rate of Turkey is high and Turkey also has a very young population, and creating jobs is a major challenge, it requires maintaining a high rate of growth in Turkey. Now, maintaining a high rate of growth in Turkey then comes back to some of the critical policies of the program.''
Moghadam said regarding privatization, ''I think at the beginning of this year, we have seen an acceleration in a privatization process, which has been positive. The TEKEL alcohol-wing was--after a lengthy court process--was finalized. The auction for TUPRAS was successful. As you point out, the deadline has now been extended. We understand from the privatization agency that some of the details of the agreement are not yet in place, and they have extended the deadline in order to provide more time. And they are hopeful that it will be completed, and we certainly hope that they are correct in that thinking. And I think one needs to look at some of the other privatization issues. There are some important privatization issues that are supposed to take place this year, and particularly Turk Telekom, and a number of others like PETKIM, et cetera. And it is important to build on this momentum that has been initiated early this year. I think it is understandable that some of the major privatizations take time, and I know the authorities are working on some of the impediments which caused the failures of last year. But, in conclusion, I would say that our impression is that the government is committed to the privatization process. The question here is ensuring its success by having a realistic, but at the same time ambitious, program which they have formulated, and it is stated in the current LOI.''
''I think whenever I have talked to investors, the top priority they see is economic stability. And I think under the Fund-supported program, there has been major strides in that process. For example, if you look at the very successful conclusion--the press release of the very successful Investment Advisory Council which took place on March 15th under the chairmanship of the Prime Minister and with the attendance of a dozen or so major potential investors in Turkey, you will see, for example, that the issue of economic stability and predictability is at the top of their agenda. And they also highlight the importance of economic stability in variables such as inflation,'' noted Moghadam.
(GC-BRC) 17.04.2004