Press Release No. 03/135

Press Release: IMF Completes Fifth Review of Turkey's Stand-By Arrangement, Approves Request for Extension of Repurchase Expectations

August 1, 2003

The Executive Board of the International Monetary Fund (IMF) today completed the fifth review of Turkey's economic performance under its Stand-By Arrangement. Completion of the review enables Turkey to draw SDR 340.2 million (about US$476 million) immediately under the arrangement.

The Executive Board also approved a one-year extension to the obligation dates of time-based repurchase expectations for the period 2004 and 2005 in an aggregate amount equivalent to SDR 8.2 billion (about US$11 billion).

Turkey's Stand-By Arrangement was approved on February 4, 2002 (see Press Release No. 02/7) in a total amount of SDR 12.8 billion (about US$18 billion). So far, Turkey has drawn SDR 10.4 billion (about US$15 billion) under the arrangement.

Following the Executive Board discussion, Horst Köhler, Managing Director and Chairman, said:

"The Turkish authorities have made strong and welcome efforts in recent weeks to implement their program of stabilization and economic reform. These include the measures put in place to safeguard the primary surplus target of 6½ percent of GNP, the enactment of legislation to underpin social security reform while excluding amnesties, and the progress made on the program's structural reform agenda. These actions bring policies back on track to achieve the basic objectives of the Fund-supported program, namely, disinflation, debt reduction, and sustained economic growth.

"Economic conditions have improved following the rapid conclusion of the war in Iraq. Progress on European Union-related legislation is also welcome; this has undoubtedly contributed to improved market sentiment. With strong output recovery and continued disinflation so far this year, the program's projections of 5 percent output growth and 20 percent inflation in 2003 are within reach. However, real interest rates remain high reflecting underlying fragilities.

"Completion of the review provides a valuable opportunity for the Turkish authorities to demonstrate full program ownership, and continue with consistent and steadfast program implementation. Key in this regard would be the maintenance of fiscal discipline to safeguard the 6½ percent of GNP primary surplus target, not only for this year but also in 2004.

"The Central Bank of Turkey (CBT) is to be commended on its skillful conduct of monetary policy. The CBT has successfully managed to increase confidence in its inflation objective, cut interest rates and accumulate reserves. The diligence shown by the Banking Regulation and Supervision Agency (BRSA) in its supervision of banks is welcome, as are other banking sector reforms. The authorities need to build on this progress by further improving bankruptcy procedures, privatizing state banks, and resolving the intervened banks. To enhance policy credibility, the authorities need to strengthen the operational and financial independence of regulatory agencies, including the BRSA.

"In line with Fund policy, the Fund's Executive Board supported moving part of Turkey's repayments from 2004-05 to 2005-06 to strengthen debt management and thereby contribute to the success of the authorities' reform program.

"Continued strong policy actions will allow Turkey to achieve its macroeconomic targets and maintain a viable debt position in the medium term. The Government's recent actions bode well for the success of the Fund-supported program. On this basis, Turkey's efforts deserve the continued support of the international community," Mr. Köhler stated.