Press Release No. 04/76

Press Release: IMF Completes Seventh Review and Approves US$495 Million Disbursement Under Stand-By Arrangement with Turkey

April 16, 2004

The Executive Board of the International Monetary Fund (IMF) today completed the seventh review of Turkey's economic performance under the Stand-By Arrangement and approved the disbursement of an amount equivalent to SDR 340 million (about US$495 million). In completing the review, the Executive Board also granted Turkey's request for waivers, and approved the rephasing of the remaining program reviews and an extension of the Arrangement through February 3, 2005 to allow time for the final disbursement under the program.

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$18.6 billion). So far, Turkey has drawn SDR 11.1 billion (about US$16.2 billion) under the Arrangement.

Following the Executive Board discussion, Anne Krueger, Acting Managing Director and Chair, said:

"Turkey's economic program has continued to deliver impressive results. Economic growth has exceeded program targets for the second year running, interest rates have fallen sharply, helping Turkey's debt dynamics, inflation has declined to its lowest rate in a generation, and confidence in the Turkish lira has been restored.

"The government's commitment to meeting its primary surplus target of 6½ percent of GNP in 2004 has played an important role in this success. The government's recent corrective measures, including cutting discretionary spending by 13 percent and raising excises, demonstrate its commitment to meeting the 2004 program target, and the government should remain vigilant to avoid slippages.

"The adoption of a comprehensive structural fiscal reform strategy in 2004 should help sustain this fiscal adjustment in the medium term and lead to a better composition of the budget. Stronger tax administration will aid in combating tax evasion, planned social security reforms will help underpin medium-term fiscal stability, and the forthcoming public expenditure review should provide guidance on reducing rigidities in the budget structure. Timely implementation of this ambitious reform agenda is needed to help boost policy credibility.

"The Central Bank of Turkey's handling of monetary policy has continued to be impressive, with inflation rates falling sharply. The government's continued fiscal discipline has played a key role in this accomplishment.

"The current policy response to capital inflows—reintroducing foreign exchange purchase auctions, allowing modest real appreciation of the exchange rate, and cutting interest rates gradually—is appropriate. Closer coordination between the Central Bank and the Treasury in sharing the cost of accumulating reserves should help strengthen monetary and debt management.

"The authorities' intention to reinvigorate banking reform is welcome. The Banking Act is being brought more closely in line with European Union practice, while the inquiry into Imar bank should help strengthen banking supervision. Needed further steps include accelerating asset recovery by the Savings Deposit and Insurance Fund (SDIF) and reform of state banks. Firm support of the Banking Regulation and Supervision Agency (BRSA) will continue to be important.

"The Turkish authorities have continued to make strong efforts to adhere to their ambitious program, including by implementation of fiscal measures ahead of the March elections to help meet the primary surplus targets. They have also adopted an ambitious structural reform agenda for the remainder of the program. The result has been a marked improvement in market confidence and economic performance. These strong efforts deserve the continued support of the international community," Ms. Krueger said.