Press Release No. 06/107

Press Release: Review Discussions on Turkey's IMF Stand-By Arrangement Conclude Successfully

May 22, 2006

Mr. Hugh Bredenkamp, the IMF Senior Resident Representative in Turkey, issued the following statement in Ankara today:

"An International Monetary Fund mission, led by Lorenzo Giorgianni, today successfully concluded discussions on the third and fourth reviews under Turkey's Stand-By Arrangement and agreed ad referendum on a draft Letter of Intent.

"Against the backdrop of vigorous economic growth in Turkey, led by strong domestic demand, the current account deficit has continued to widen and the pace of disinflation has slowed. These developments highlight the need to adhere strictly to the government's fiscal policy framework, and for a cautious monetary policy stance.

"Underscoring their commitment to fiscal discipline, the authorities will adopt measures to ensure that aggregate primary expenditures in 2006 do not exceed the approved budget and to keep the deficit in the social security system within the program ceiling of 4½ percent of GNP. These measures, together with the potential for fiscal revenues to overperform, should yield a primary surplus in 2006 that exceeds the government's target of 6½ percent of GNP. As a further safeguard for the budget, the government has declared that it will not introduce any further reductions or exemptions to the VAT.

"The central bank reaffirmed its determination to achieve the targets set out in Turkey's recently-adopted formal inflation targeting framework, and to preserve the floating exchange rate regime, which has shown its resilience in the face of recent market turbulence. The central bank's net international reserve position is expected to remain comfortably in excess of program targets.

"Other key topics for the reviews included the government's policies to strengthen the finances of the social security system, plans for tax reform and improved tax administration, the implementation of reforms to enhance bank supervision, and the strategy for the state banks. The draft Letter of Intent sets out steps and timetables for moving forward in all these areas. Parliamentary approval of the two landmark social security reform laws was a major achievement, and the government remains committed to implement these reforms as expected.

"The agreement reached with the authorities is subject to approval by the Management and Executive Board of the IMF. In the period ahead, the government intends to implement identified budgetary measures and other policy actions. Provided that these steps are taken in a timely manner, the IMF Executive Board could meet to consider the completion of the third and fourth reviews in July. Completion of the reviews will enable Turkey to draw immediately an amount equivalent to SDR 1.2 billion (about US$1.9 billion)."