Holding a press conference together with IMF Turkey desk chief Riza Moghadam, economy minister Ali Babacan said that they agreed on the outline of the new stand-by programme covering 2005-2007 period. The main points of the stand-by deal are as follows:
• USD 10bn loan will be provided by the IMF under the new programme (USD 1.3bn funds which will not be used under the current programme is also included in this figure) The IMF loan will be provided in 12 equal tranches; 5 tranches in 2005 (one of which just after the approval of the new programme by the IMF Board), 4 tranches in 2006 and 3 tranches in 2007 will be released.
The number of IMF reviews would be either equal to or one or two less then the number of tranches. The maturity of the IMF loan is 4 years with a 27-month grace period. Under the new programme, Turkey will also roll-over USD 3.7bn part of its USD 11bn debt to the IMF, due in 2006 to 2007. In the next three years, Turkey will repay some USD 10bn debt to the IMF, and its debt will decline to USD 9.3bn (SDR 6.4bn) at end-2007 from USD 20bn (SDR 13.8bn) at end-2004.
• The IMF board will discuss the new stand-by programme with Turkey in early 2005. However this should not be mistaken as first or second week of the year, said the economy minister. The board will convene after the three drafts on banking sector, social security system, and tax administration are submitted to the parliaments.
• The government will submit the IMF-required drafts to the parliament shortly, said economy minister. Upon a question Moghadam said that they reached agreement with Turkish officials on drafts regarding banking sector and revenue directorate.
• Regarding social security, the government firstly aim to cap deficit /GNP ratio at its 2004 level that is 4.5% over the next there years. The deficit will be reduced to 1% of GNP in the long run.
• The Central Bank will apply official inflation targeting model starting from 2006. The inflation projections are 8% for 2005 and 5% and 4% in the following two years. The programme foresees 5% annual growth in the next three years. The public debt stock/GNP ratio is projected to fell by 10pps below 60% level at end-2007. To this end tight fiscal policies would continue in the coming years.
• Regarding tax rates, comprehensive measures, which would take effect in 2005, will be announced in ten days (referring to decline in tax rates, which has been lonely rumoured).
IMF managing director Rodrigo de Rato said that the new programme should allow Turkey to gain independence from further IMF financial support. If implemented successfully, it will help Turkey to create conditions for sustained growth, employment creation, reducing inflation towards European levels, and enhance the economy’s resilience. through a significant decline of debt. Continued fiscal discipline remains central to achieve these goals, and reducing social security deficit will be a major challenge regarding the issue, IMF managing director said.
Rato also added that tax policy reforms would bring the country’s tax regime closer to the EU norms. According to Rato, in the banking sector, the goals under the new programme will be to align Turkey’s supervisory framework more closely with EU standards, accelerate resolution of assets held by SDIF (saving deposit insurance fund), and strengthen further operations of state banks.