WASHINGTON, Aug 10 (AFP) - Turkey has a large stock of short-term, foreign currency debt, leaving it open to an exchange-rate or interest-rate shock, the International Monetary Fund warned Tuesday.
In an annual review of the Turkish economy, IMF directors commended the country for cutting inflation to single digits and curbing government budget deficits.
"Despite these considerable achievements, directors noted that vulnerabilities remain," an IMF statement said.
"The size of the public debt, its short maturity and large foreign currency component make Turkey vulnerable to exchange rate and interest rate shocks," it warned.
"In addition, the quality of fiscal adjustment needs to be improved and the pace of structural reform intensified, if the achievements to date were to be sustained and be carried forward in the form of robust medium-term growth."
In the short run, the IMF said domestic demand growth was "exceptionally strong," widening the broadest measure of the Turkish trade deficit.
The Fund praised efforts to dampen domestic demand.
Fiscal policy had been kept tight, the directors said, with lower tax incentives for consumer spending, curbed state bank lending, and targets exceeded for the "primary surplus" -- the budget surplus not counting debt payments.
"Despite these efforts, directors saw the need to continue to monitor the rising current account deficit carefull," the IMF said.
"Against this background, directors urged the authorities to save this year's fiscal overperformance, at least until the outlook for the current account stabilizes, and to stand ready to tighten fiscal policy further if domestic demand continues to be strong."
IMF chiefs said they regretted repeated increases in minimum wages, but welcomed the authorities' efforts to restraining government sector wages.
In Ankara, Deputy Prime Minister Abdullatif Sener said Turkey was likely to start talks with the IMF in September on a new three-year economic assistance program.
The last package, worth 19 billion dollars at current exchange rates, was signed in February 2002 during a financial crisis and is due to expire February 2005.
Turkish business groups have called for the renewal of the stand-by arrangement, worried that the government could loosen tight economic measures without international scrutiny.
Sener said the planned new three-year program would also help Turkey come closer to the economic norms of the European Union, which it is seeking to join.