Turkey—Letter of Intent

Ankara, July 30, 2002

The following item is a Letter of Intent of the government of Turkey, which describes the policies that Turkey intends to implement in the context of its request for financial support from the IMF. The document, which is the property of Turkey, is being made available on the IMF website by agreement with the member as a service to users of the IMF website.

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Mr. Horst Köhler
Managing Director
International Monetary Fund
Washington, D.C. 20431

Dear Mr. Köhler:

1. Turkey has maintained the strong implementation of its economic program. We met the end-May performance criterion for the consolidated government sector primary surplus, and the end-June performance criteria for base money and net international reserves (Annex A). We have also continued to make good progress in structural areas, including toward meeting prior actions and structural benchmarks (Annex B), although the end-June performance criterion on state bank restructuring has been missed by a small margin, as described below.

2. This steadfast implementation has delivered positive results, with both the 3 percent growth target and the 35 percent inflation target for 2002 well within reach, even taking into account the effect of recent political developments. Although the currency depreciation of recent months may still have further effects on prices, with annualized inflation of only 25 percent for the first half of 2002, our 35 percent end-year target remains readily achievable. The prospects for achieving the GNP growth target of 3 percent are also good: in the first three months of the year GNP grew by a seasonally adjusted 7 percent quarter on quarter, and more recent data on capacity utilization, industrial and agricultural production, exports, and tourism suggest that the economic recovery has continued in the second quarter.

3. We remain fully committed to the program, and will make every effort to keep it on track, political uncertainties notwithstanding. Even with the marked worsening of financial market indicators over the past few months, interest rates and the exchange rate remain broadly within our conservative program assumptions. And, with a floating currency, and our ongoing efforts in banking and other structural areas—facilitated by the strengthened independence of institutions, such as the Central Bank of Turkey (CBT) and the Bank Regulation and Supervision Agency (BRSA)—Turkey's economy is now more robust than before. We have also strengthened the program through introducing new structural commitments in key areas, including fiscal policy and banking reform. Moreover, continued broad support for the economic strategy from public opinion and civil society will also help ensure the program's continued strong implementation.

4. While early elections could delay legislative reforms, the government remains committed to timely implementation of those aspects of our policy strategy that are the prerogative of the executive branch. Parliament has been reconvened and is likely to set an election date of November 3. As a result, our legislative reforms will inevitably face some delay. Even so, the government and its economic team are committed to completing all technical preparations for such legislation, and to submit such legislation to parliament, according to the timetable outlined in this letter. In addition, the vast majority of the program's policies (for example, monetary and fiscal policy, and a wide range of structural reforms) do not require the approval of parliament. We intend to implement these fully, thereby safeguarding the program's macroeconomic policies and objectives.

5. On this basis, we request that the third review under the SBA be completed. We also request a waiver of nonobservance for the end-June performance criterion on the closure of state bank branches, which was missed by a narrow margin (with 788 closures, we fell just 12 short of the 800 end-June target), as we continue to make good progress with the operational restructuring of state banks (as described in paragraph 21 below). Moreover, we request that the ceilings and floors for the quantitative performance criteria under the arrangement on (i) the cumulative primary balance of the consolidated government sector, (ii) contracting or guaranteeing new external public debt, (iii) short-term external public sector debt, (iv) net international reserves, and (v) base money will be set for the respective test dates through December 31, 2002 as set out in Annex A. These levels correspond to the indicative targets in the January 18, 2002 Letter of Intent. Finally, to facilitate close monitoring of fiscal performance in the remainder of the year, we propose establishing indicative targets on the cumulative primary balance of the consolidated government sector for end-September and end-October 2002, and a performance criterion on the cumulative primary balance of the consolidated government sector for end-December 2002, as also shown in Annex A.

Fiscal policy and public sector reforms

6. We remain on track to achieve the public sector primary surplus target of 6.5 percent of GNP in 2002. We have met all the performance criteria on the consolidated government sector primary surplus so far this year, including that for end-May. Moreover, preliminary data for June show that, cumulatively, the central government primary surplus remains TL 1.2 quadrillion (0.4 percent of annual GNP) above the program target. Finally, price hikes in state economic enterprises (SEEs) in June-July, particularly for telecommunications services, tobacco, alcohol, and natural gas, have helped to recover the bulk of the SEE revenue losses from earlier delays in raising prices. Looking forward, we expect tax revenue to be somewhat below our earlier projections due to lower-than-expected inflation and nominal income, tax rebates are expected to be well beyond program projections due to robust exports, and recent instability has led to some collection problems in social security institutions. In addition, health spending pressures have emerged, largely as a result of higher medicine prices, and we have had to allocate resources for election expenses. Partly offsetting these pressures, we expect higher grants, and some transfer payments will shift to 2003. To address the remaining gap, we will reduce this year's spending in selected earmarked accounts (which will allow us to transfer about TL 300 trillion to the budget), and we expect to achieve savings of about TL 100 trillion in discretionary budget spending due to a lower-than-expected price level. We will also complete all remaining real price increases necessary to fully offset earlier SEE revenue losses. SEE prices will subsequently be changed broadly in line with the WPI, except in the energy sector, where we will continue to pass through world prices.

7. We remain committed to keeping the public sector primary surplus at 6.5 percent of GNP in 2003, to help further improve public debt dynamics. On July 16, the High Planning Council issued a decision setting guidelines for the 2003 budget consistent with our macroeconomic framework envisaging real GNP growth of 5 percent and inflation of 20 percent. This decision envisages that real primary spending in the public sector will remain unchanged in 2003, which would support our intention not to raise the already high overall tax burden (see paragraph 8). On the basis of this decision, the government intends to adopt by September 2002 an action plan leading to further reductions in the average project completion time in the public investment program by more than 3 percent annually in both 2003 and 2004. The action plan will include details on the 2003 public investment program and further steps for the 2004 program for which the details will be ratified by the High Planning Council in 2003. In addition to the framework laid out in the decision, our plans for 2003 include the following:

· Our public sector wage policy for 2003 will be guided by three considerations. Civil service salary increases will be in line with programmed inflation. In negotiating public worker wages, we will continue to strive to address the large wage premium over the civil service. Finally, we will aim to reduce backward indexation in all future civil service and public sector wage agreements.

· Our public sector employment policy will continue. Consolidated budget employment will not be increased, and in state enterprises, hiring will only be permitted (at a 10 percent replacement rate) for attrition in non-budget funded entities. Our retrenchment program will continue as programmed, and for this attrition there will be no replacement hiring.

· We will enforce financial discipline in state enterprises and local governments. Backed by the new Debt Management Law, we are pursuing repayment of local government arrears to Treasury on called guarantees. Moreover, we are preparing a comprehensive plan to address tax arrears (completing such a plan is a structural benchmark for September 15, 2002). This will entail financial and/or operational restructuring of certain state enterprises and municipalities.

· We will continue to implement our pricing policy in state enterprises. Price increases will be broadly in line with the WPI, and for the energy sector we will pass through world prices. We will aim for real reductions in prices where cost reductions permit.

· Finally, we will continue to implement the pension reform agenda for SSK and BK (the funds for wage earners and the self employed) as set out in 1999. To this end, we intend to pass legislation underpinning the necessary institutional and administrative reforms by end-2002. We will also prepare by end-year, with technical assistance as needed, a study of the solvency of our civil service pension fund, to prepare the ground for future reforms.

· In the event of elections this fall, we would issue a provisional 2003 budget to be in effect until the full budget could be passed. This provisional budget would provide for no real increase in appropriations over the same time period in 2002.

8. We will continue to press ahead with our comprehensive overhaul of the tax system. Having significantly simplified indirect taxation, we have now turned our attention to direct tax and revenue administration reforms:

· Our plans for the direct tax reform are taking shape. (The legislation for this second phase of tax reform is to be submitted to parliament by end-October 2002 as a structural benchmark, and is to be passed by parliament by end-March 2003.) In this reform, our two principal aims are to broaden the tax base (especially by rescinding exemptions and incentives), and to reduce key distortions (especially on capital income). To the extent our expenditure containment efforts allow, we will reduce the overall tax burden.

· Our revenue administration reforms should help broaden the tax base in the medium term, creating room for reductions in tax rates. In September 2002, we will approve a new functional structure, which includes units covering taxpayer registration (including tax office management), taxpayer services, audit, collection, legal affairs and procedures, tax policy, international tax relations, as well as units for support functions (budget, human resources, and information technology). In addition, an internal audit group will be established and will report directly to the General Director. In May, a high-level audit coordination committee was established in the Ministry of Finance, and a Ministerial decision, to be issued by end-September, will specify both how it will operate, and what the key elements of the annual audit plan will be. We have already hired 250 new auditors to help us implement our plan for 2003, which we expect to complete by end-November 2002.

9. Public worker employment in SEEs and in other parts of the public sector is being rationalized, and we are working toward introducing a retirement program for the civil service as well. Between end-January and end-June 2002, 11,342 public workers retired from state enterprises. There were no transfers of workers to the civil service during this period. In July so far, 2,580 additional public workers have retired from state enterprises. With this, we are on track to achieve the end-October 2002 structural performance criterion on reducing by two thirds the 45,800 state enterprise workers identified as redundant as of end-January. Outside the SEE sector, in the first half of 2002 4,280 public workers retired from consolidated budget agencies. We are also preparing legislation extending the retirement program to the civil service.

10. We will shortly introduce ambitious public financial management legislation to help overhaul the budget process. The new budget systems law (the Public Financial Management and Internal Control Law) will set out a comprehensive framework for budget preparation, execution, accounting, reporting, and internal and external audit. Over many years, Turkey's fiscal system has become increasingly fragmented, undermining transparency and aggregate fiscal control. To address this, the law will consolidate revolving funds, extrabudgetary funds, and annexed and special budgets into one central government budget, under a common classification. It limits the scope for ad hoc policy initiatives which have fiscal consequences. The bill authorizes the Ministry of Finance to set standards for accounting, financial control, and reporting throughout the general government. The law also expands the coverage of Turkish Court of Accounts (TCA) audits to all of general government and provides for external audit of TCA's own expenditures. Finally, over time, it will allow the locus of financial control to shift to line ministries, removing the incentive for fragmentation and improving performance orientation in government agencies. More specifically, the TCA will lose its ex-ante control function, and internal audit units and ex-ante control functions will shift to line ministries. As indicated in our anti-corruption plan, we will prepare and submit to parliament an Inspection Law to achieve restructuring in all inspection units and begin implementing the inspection standards and establish the hiring and working principles for inspectors. The Public Financial Management and Internal Control Law, originally expected to be submitted to parliament by end-June (as a structural benchmark), and also covering reforms to extrabudgetary funds (whose passage by parliament was a structural benchmark for July), will be submitted to parliament as a prior action for this review, and its passage by parliament will be a new structural benchmark for end-March 2003.

11. We are also preparing legislation to improve the governance of state enterprises. This legislation will clarify state enterprise goals (including financial targets) and set new accountability standards. At the same time, the proposed law will enhance management autonomy and internal governance, preparing the ground for future privatizations. Specifically, it will address accounting, reporting and audit arrangements, and the role, responsibilities, and independence of state enterprise boards. We will submit this legislation to parliament by end-2002, as a new structural benchmark.

Debt management

12. Our efforts to strengthen debt management are continuing. We continue to improve our risk management capability and the coordination of our borrowing strategy. We will reintroduce a strengthened primary dealer system ahead of schedule by mid-August. The new system will aim to deepen the secondary market for government debt. It will also ensure that a significant share of treasury bills at auction will be placed through primary dealers. In line with the new Law on Debt Management, a communiqué will be published in the Official Gazette by end-September 2002 defining the responsibilities of the middle office and of a new debt management committee that will oversee the development of risk and debt management policy (a new structural benchmark). Based on our recently completed study of Treasury operations, which incorporates technical and financial assistance by the World Bank, by end-September 2002 we will formulate an action plan to establish an integrated risk management system to monitor financial risk across the government's debt portfolio. If necessary, the Treasury will hire external consultants for the design of this system in the first half of 2003. In the meantime, we will develop simple benchmarks to monitor financial risk and to guide our borrowing decisions. By end-2003, the middle office will be fully operational.

Monetary and exchange rate policies

13. Monetary policy will continue to focus on attaining our inflation target of 35 percent for 2002. In the first half of the year, we have met all of our quantitative monetary program targets. By sticking to the monetary program, we have achieved significant reductions both in inflation and in inflation expectations. As a result, despite recent uncertainties, we are now fully on track to meet our end-year inflation target. For the second half of the year, we reaffirm our commitment to the monetary targets set out in the 2002 program, and are continuing technical preparations for the introduction of formal inflation targeting before the end of the year.

14. We remain committed to the floating exchange rate regime. However, as before, the CBT could intervene in the foreign exchange market in a strictly limited manner to dampen excessive volatility. Since recent developments have resulted in renewed currency substitution while the balance of payments position has remained comfortable, the CBT has temporarily suspended its daily foreign exchange purchase auctions. However, depending on developments in the balance of payments and currency substitution, the CBT stands ready to reintroduce these purchase auctions, given our longer-term objective of strengthening our international reserve position.

15. The efforts to strengthen foreign exchange and money markets continue:

· Our earlier efforts are bearing fruit. Banks are now making increased use of the May 24 relaxation of the system of averaging reserve requirements to better manage daily liquidity demands. Interbank segmentation has declined markedly, with the extension of withholding tax on interest payments to Takasbank. With parliament having passed the needed legislation, stamp duties on forward contracts were removed effective June 22. Moreover, the decree to implement the removal of tax on foreign exchange transactions was issued on July 30, meeting a prior action for completing this review. The CBT will continue its one-month deposit auctions, which have been well received by markets, and have helped define the yield curve. Deposit outflows associated with the results of the audit exercise have subsided and the CBT has not had to supply funds under its contingency credit window established on June 19.

· We are also making further efforts. The CBT's phased withdrawal as a blind broker for banks in the money and foreign exchange markets remains on schedule. The CBT and the BRSA have established high frequency coordinating arrangements (including daily information exchange) to ensure that only sound intermediaries participate in the money and foreign exchange markets. In this regard, state-owned banks, which have until now been excluded from the overnight markets, will be allowed to re-enter the market, but with exposure restricted to no more than 2 percent of deposits. On August 1, 2002, the Turkish Banks' Association will launch the Turkish Lira Interbank Offer Rate (TRLIBOR) which will provide an interbank reference rate for transactions of a specified size (TL 1 trillion). 13 banks, each with assets exceeding US$1 billion, will participate, with state banks as price takers.

Financial sector reform

16. With the independent evaluation of banks' financial condition now completed, the BRSA is continuing to implement its strategy for strengthening the private banking system:

· We expect the recapitalization of the banks to be completed by end-August 2002. A three-stage audit of 26 banks' financial condition was completed in June. All the banks were notified about the outcome of the process, which indicated that (excluding the intervened Pamukbank) the capital needed from banks with deficiencies amounted to TL 1,326 trillion. Of that amount the banks have already raised TL 1,102 trillion during the period of the evaluation process. To fill the remaining capital need, we expect requests from the Tier II public capital support scheme. Those banks that receive support will have representation by the BRSA or the Saving Deposit Insurance Fund (SDIF) on their boards.

· We are taking steps to resolve the recently intervened Pamukbank. The audit confirmed that Pamukbank was insolvent, and the acquisition proposal by Yapi Kredi Bank was not found feasible. As a result, in June the SDIF took over Pamukbank, restored its paid-in capital, changed its board and some senior executives, transferred its nonperforming related party loans to the SDIF's Collection Department, and put it up for sale. Potential bidders will have until September 27 to conduct due diligence, and must submit their bids by October 4, 2002.

· We are taking steps to ensure that the intervention of Pamukbank does not interfere with the operations of Yapi Kredi Bank, which has a capital adequacy ratio above 8 percent and remains sound. Pamukbank's previous owners also hold 45 percent of the shares of Yapi Kredi Bank and Pamukbank itself directly holds another 10 percent. With the intervention of Pamukbank, the previous majority owners were no longer allowed to exercise voting rights in Yapi Kredi Bank, which, as a result, have been transferred to the SDIF. However, dividends rights still remain with the owners. The BRSA and SDIF will in consultation with appointed independent advisors develop a strategy for resolving Pamukbank and the ownership in Yapi Kredi Bank by September 16, 2002 (a new structural benchmark)

· Finally, the BRSA has continued its efforts to publicize and explain the results of the audit and recapitalization exercise. It has published explanatory materials, including detailed reports on the exercise as a whole, and on the SDIF's intervention in Pamukbank. It has also held seminars to explain the process to market participants, investors, and media.

17. We are also taking steps to complete the resolution of the four remaining intervened banks (besides Pamukbank):

· On July 5, the SDIF received a bid for the purchase of Toprak Bank. The SDIF Board will make a final decision on this bid by end-July 2002. If this bid is not acceptable and the bank is not sold by September 16, 2002 the bank's license will be revoked by end-September 2002 and it will either be merged into another bank or liquidation procedures initiated (the revocation of the license is a new structural benchmark).

· On June 27, a court ruling was issued allowing the SDIF to proceed with the liquidation of Türk Ticaret, and its bank license was revoked. Liquidation will be started once the August 9 shareholders' assembly meeting has formally approved it.

· If by end-August 2002 no qualified investor has offered to purchase Tarişbank, its license will be withdrawn. Its nonperforming loans will then be transferred to the SDIF's Collection Department, and remaining liabilities and performing assets absorbed by Bayindirbank, the bridge bank established earlier this year, by end-2002.

· As part of the SDIF's strategy for resolution of assets in intervened banks, it is expected that Bayindirbank's role as a bridge bank will gradually diminish.

18. The BRSA is developing a strategy for dealing with the bad assets transferred to the SDIF's Collection Department, including the establishment of an asset management company (AMC). The SDIF, with advice from independent consultants, will develop a detailed sale strategy for disposal of assets held by the Collection Department. This strategy will be announced by end-September 2002 (a new structural benchmark). By end-October 2002, the SDIF will also announce the sale of loan portfolios with a total face value of at least US$250 million (another new structural benchmark), with bids to be submitted by end-2002. If private banks or other entities were to express an interest in setting up their own AMC, the SDIF would be willing to participate and provide up to 20 percent of the capital needed as permitted by the law. Otherwise assets in intervened banks would be handled by the Collection Department (bad assets) and Bayindirbank (good assets).

19. The "Istanbul Approach" for corporate debt restructuring is now operational. Final institutional elements were put in place in July with the appointment of the Turkish Industrial Development Bank (TSKB) as the Coordinating Agency, the appointment of members of the Arbitration Committee, and the establishment of arbitration procedures. The first corporate debt restructuring agreement under the Istanbul Approach was concluded in late June by a consortium of credit institutions, including the IFC and the EBRD, restructuring debt of a conglomerate group. Negotiations for other corporate workouts are in progress.

20. The Ministry of Justice is pressing ahead with the reform agenda on bankruptcy and foreclosure laws in consultation with the World Bank. We have received the World Bank's Report on the Observance on Standards and Codes on Insolvency and Creditor Rights Systems, and endorse the Report's policy recommendations. Based on the recommendations, our aim remains to formulate comprehensive reforms by end-September (a structural benchmark) and enact them by end-January, 2003 (also a structural benchmark). Moreover, we have submitted draft legislation to the Council of Ministers for creation of intermediate courts of appeals in bankruptcy cases and for accelerated creditor enforcement procedures.

21. Our restructuring of state banks is entering a new phase. While operational restructuring will continue, the critical phase of major employment reductions and branch closures in Ziraat and Halk is almost complete. Although we have not quite met the target of 800 branch closures (structural performance criterion for end-June 2002), we closed 788 branches between April 2001 and June 2002. In July, we have closed 5 more branches, and expect the 800 target to be reached shortly. Between April 2001 and June 2002 we have reduced staffing by 26,000 employees. With an additional staff reduction of 3,000 in July 2002, the number of employees has been almost halved. Working with the World Bank, we will now prepare the banks for privatization. We hope to appoint an independent advisor on the privatization of Halk by end-September, and to put it up for sale in the first quarter of 2003. We will also seek outside assistance for the privatization of Ziraat, and to sell it later as conditions permit. To maximize the sales value of the two banks, we believe that it is essential that the banks present financial statements for at least one full year after the operational restructuring has been completed, before we complete the sales process. The planned privatization of Vakif Bank was not successful, as no bidder was willing to purchase the bank whole (a condition that had been set for acceptable bids). We will again work with the World Bank to ensure the success of this sale, by operationally restructuring the bank. We will also look into any legal obstacles to the privatization of Vakif Bank, and submit to parliament any needed legislative amendments by end-October 2002. We expect the bank to be put up for sale again in the second quarter of 2003.

22. The implementation of International Accounting Standards (IAS) is proceeding as planned. In June the BRSA issued the final regulation for the implementation of IAS (meeting a performance criterion for end-June 2002), which should be fully reflected in banks' balance sheets by end-2002.

23. We will continue our efforts to strengthen supervision of financial institutions and to enhance consolidated supervision:

· We will transfer the supervision of non-bank financial institutions (excluding insurance companies) from Treasury to the BRSA. At present, the Treasury is in charge of supervising these companies, even though banks own many of them. To better facilitate consolidated supervision, we will send a draft law to parliament by end-March 2003, which transfers supervisory responsibility to the BRSA effective July 1, 2003.

· We will also strengthen the supervision of insurance companies, which the Treasury is also responsible for supervising, even though banks own some of these. The Treasury will launch a study, with independent consultant advice, to be completed by end-2002 that will consider how best to strengthen the regulatory and supervisory framework of insurance companies. In addition, by the end of the year the Treasury will also send to the Council of Ministers a new draft law to regulate insurance companies in line with applicable EU Insurance Directives and IAIS Core Principles.

· The BRSA is strengthening its banking supervision through introduction of risk-based supervision, including oversight of operational risks. The BRSA may need to hire outside expertise to be able to carry out such supervision. In light of this, together with its increased supervisory responsibilities of non-bank financial institutions, the BRSA will complete a reorganization study to enhance its supervisory capacity. The study will be completed by end-2002 (a new structural benchmark).

Enhancing the role of the private sector

24. We are making progress in the sale of companies that are ready for privatization. In early July, the Privatization Agency (PA) announced a new strategy for reducing the public share in TÜPRAŞ (petroleum refinery) to below 50 percent: this will be done by end-2002 through a tender for a strategic partner, or the placement of exchangeable bonds, or both, since a public offering is not feasible under current market conditions. On July 16, the High Privatization Council authorized the sale of the remaining state share of 25.8 percent in POAŞ (petroleum distribution company) to the existing strategic investor. We expect the sale to be completed by mid-August 2002. On July 30, we reduced the public share in ERDEMIR (steel company) to below 50 percent through a sale to an investment fund. By October 2002, we will announce a block sale of at least 51 percent of the shares in PETKIM (petrochemical company). We are confident that these and other sales of state enterprises will bring in enough cash to meet the US$700 million indicative target on cumulative cash privatization proceeds for 2002.

25. We are also pressing ahead with the preparation for the sale of other key SEEs. Preparations for the privatization of Türk Telekom (TT) are proceeding according to the road map approved in May. The tender for an advisor on TT's revaluation was announced on July 8, and the advisor will be selected in August. Consultants to prepare the privatization plan for TEKEL (the tobacco and alcohol monopoly) were selected in July, and the plan will be submitted to the Council of Ministers in September. The High Privatization Council will approve shortly a road map for the privatization of ŞEKER (the sugar company). The road map envisages that 5 inefficient sugar factories will be closed and 7 factories converted into corporations by end-October 2002, and that preparatory work for privatization will be completed by end-2002. In the electricity sector, as planned, with the exception of the projects potentially eligible for Treasury guarantee, we will transfer all state-owned thermal generation and electricity distribution assets under the scope of privatization by end-July. Pre-qualification tenders for these distribution assets would be launched by February 2003. We will also transfer two distribution subsidiaries of BOTAŞ (natural gas company) to the PA by end-August 2002, with a view to privatizing it in 2003.

26. We are complementing privatization by other steps to improve the private business environment. While our preparations for the planned July 18 inaugural meeting of a high-level Investor Advisory Council were well advanced, we decided not to hold the meeting at this time owing to the recent political developments. We remain, however, determined to hold this meeting at an opportune time in future. In the meantime, we are continuing to take steps to improve the business climate for both domestic and international investors. The Coordination Council for the Improvement of the Investment Climate will continue to hold regular meetings to assess private investors' needs and monitor the progress made by the nine technical committees established earlier this year. Specifically, by April 2003, we will submit to parliament (i) a new draft law on company registration to simplify and streamline the company registration process; and (ii) a new draft law on Prohibition and Prosecution of Smugglers.

Follow-up on safeguards assessment

27. Building on our earlier efforts, we have further strengthened the transparency and effectiveness of the CBT's control, accounting, reporting, and auditing systems, including in the context of the IMF safeguards assessment, which is required for all new Fund-supported programs. In particular, on July 5 we issued and posted on the CBT website the external auditor's report reviewing the consistency between the program data reported to the IMF and the audited financial statements. With this action, we met a structural performance criterion for July 15.

Very truly yours,

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