IMF Warning: Turkey must continue reforms

IMF Warning: Turkey must continue reforms

International Monetary Fund (IMF) officials are warning the Turkish government that the way out of chaotic economic straits is forward. Officials have stressed time and again in the last several months that consistent support for IMF-backed reforms is absolutely the key to keeping the Turkish econmic front stable. The IMF board met toward the end of April to review the Turkish government's economic progess to date. It was the IMF's first published review of the Turkish economy since December 1999. Positive sentiments were relayed by officials on bank sector reform which includes a bank recapitalization plan. Yet, they stressed improvement must occur on corporate debt restructuring or Turkey is liable to retain debts it can't pay back. The second IMF review is set to begin during the second half of this month. In February 2002, Turkey was bailed out by the IMF for the third time in one year with the latest bailout being a $16 billion loan to assist in Turkey's recovery from its chaotic banking crisis, worst recession since 1945 and the reverberating effects of September 11. Though, the IMF reform package has been partially successful so far, officials only predict a 3% growth for the Turkish economy in 2002 with a 5% projection in store for 2003 and 2004. On a more positive note, besides the fact that Turkey was approved for a $1 billion loan extension in April - World Bank President, James Wolfenshohn has stated that Turkey has already made major inroads toward resolving its structural problems. Wolfensohn did caution that despite the worst being over, there is no room for mistakes. Officials at the IMF echo his cautionary tone – stating that the only way for economic growth to happen is if major reforms are firmly in place. This, they say, requires absolute loyal support from the coalition government. Significant factors to watch on the road to recovery include:  Accelerate privatization of state-owned enterprises  Maintain inflationary stability  Vigorous support for current reform programs  Regional peace Experts would like to bank on the above factors ending in positive outcomes. They also realize that there are factors at play that no one can control. While most on the economic front agree there is a need for increased growth – so far the expected numbers have not materialized. Analysts point out that the possibility of a U.S. decision to attack Iraq, would have a devastating effect on economic prospects for Turkey. Certainly, the last thing Turkey needs is a repeat of its previous economic woes. One thing is certain: the IMF has been generous with Turkey and given its dire warning. Unless the government keeps its promises to reform, it runs the risk of becoming another Argentina. Yet, officials realize after September 11, that the element of surprise is always a possibility.