Turkey's economy minister Ali Babacan said yesterday that Turkey's upcoming IMF stand-by agreement will be the last of its kind. "We think that this is an exit programme from using IMF resources," Babacan told Emerging Markets in an exclusive interview. The minister added that cooperation with the Fund will nevertheless continue, although within a different framework.
"We believe that when Turkey completes the stand-by arrangement successfully, by May 2008, Turkey's exposure to the IMF will be quite reasonable," said the minister. Turkey's owes the IMF just under $20 billion.
Babacan added that the government will still opt for other types of assistance from the Fund, although the "format is still unknown" and will depend on whatever "is best for the Turkish economy."
One of the biggest concerns over Turkey's economy is the country's high external debt, which stands at 63.5% of GDP. But Babacan sought to calm fears about the deficit by pointing out that Turkey's debt stock will meet EU requirements, below 60% of GDP, by 2007 "at the latest". Turkey's external debt, which stood at 90.5% of GDP five years ago, is very rapidly becoming "less and less of an issue". He added that "the improvement is very obvious, but we still have a long way to go."
Striking a cautious note, senior bankers in Istanbul said that even though a new three-year loan agreement with the IMF appears likely to be approved by the Fund's board this month, the government must redouble its efforts to cut back its current account deficit while focusing on the thorny issue of its primary surplus. "There is no room left to make mistakes," said Hayri Culhaci, executive vice president at Akbank, Turkey's biggest bank.
The International Monetary Fund's managing director Rodrigo Rato said during a trip to Istanbul on Friday that Turkey's primary surplus hit 7% of GDP last year, exceeding the government's target of 5%. The IMF has urged Turkey to maintain a high primary surplus, which excludes interest on a debt stock that stands at some $240 billion.
"Turkey needs the IMF – not IMF's financing but IMF's approval on economic policy, its endorsement of such policy," said Culhaci. "This is the new scheme of a multi-interdependent, multi-polar, globalized world."
The minister agreed, adding that the government did not have any biases or prejudices about working with the Fund. "We want Turkey to be more integrated with the rest of the world and international organizations are realities of today's economic system.
"What is important to us is bringing long-term stability to Turkey. We don't want bad surprises in Turkey any more. If working with international organizations helps in terms of stability and policy implementations, then we will be working very closely with them," added the minister.
Babacan added that the pace of economic reforms would not endanger social stability, which is vital to ensuring economic prosperity. "In some countries reforms can be at the expense of some segments of the society, but not in our case," he said. "Falling inflation is not putting any burden on our people, because the economy is growing at the same time. We have a young and growing generation to pay social security premiums, so our social security reform will not be as painful as in other countries."