Turkish officials have strenuously pointed out over the last few weeks that Turkey has met all the targets for 2001 as agreed with the IMF and has introduced new laws in recent weeks that were set as preconditions for further Fund financing of around $10bn. The measures are aimed at curbing state subsidies to tobacco farmers, forbidding the state to lend funds to weak banks and reducing corruption in public procurement. The Turkish Lira has appreciated against the US Dollar in the first weeks of 2002 and the Istanbul Stock Exchange's 100 Index closed almost on the 15 000-point mark on January 7th. All the same political instability, with the State Minister for the Economy Kemal Dervis at the centre of debate again, threatens to undo recent optimism over the economy.
The IMF board is set to decide in late January- after a mid-January trip to the US by Prime Minister Bulent Ecevit- on a $10bn loan to Turkey, in addition to the existing sums. The Turkish Central Bank said in a statement on January 3rd that it had met all the monetary targets for the end of the year set out by the IMF in the current agreement with the fund signed in May 2001. Both net international reserves and base money are monitored as performance criteria according to the bank, and turkey achieved both targets. The $1.73bn fall in net international reserves for November and December was within the $3.546bn limit set by the IMF for the period and December base money was at TL7642 trillion, against a limit of TL7750 trillion.
Talks between Turkey and the IMF over new loans have continued since September, when the IMF held up around $3.5bn that was due to be paid to Turkey in that month and the economic effects of the terrorist attacks of September 11th became apparent. Hopes of further loans- and the public support for them from the upper echelons of the fund- together with gradual implementation of the strict conditions of past loans and implementation of preconditions for forthcoming loans have helped to boost confidence in the Turkish economy, despite the 8.5% contraction in 2001.
By the end of the year the Turkish Lira was not as low as most economists had expected, finishing 2001 at around TL1.4m per US Dollar rather than at the expected rate of over two million. Inflation has been of concern- especially after September 11th, but the most recent data suggests that this situation may be gradually improving as well, although still well above targets. Inflation figures for December released on January 3rd showed that inflation had eased somewhat from the previous month to 4.1% for consumer prices and 3.2% for wholesale prices, compared with both at 4.2% in November. Unfortunately the economic crisis of 2001 still brings Wholesale Price Index to a four-year high of 88.6% for the year. Analysts expect that the target WPI rate for 2002 will have to be increased from 31% to around 45.6%.
Despite the news on inflation some important laws have passed through the Turkish system in recent weeks. On January 4th the National Assembly passed the Public Tender Law to come into effect at the start of 2003. It will introduce new regulations to the process of public tenders, including a ten-member Public Tender Board, to try to reduce the corruption that President Necdet Sezer again attacked in his New Year address. Foreign bidders will have to raise the value of their bids when tending for contracts.
Meanwhile, on January 3rd the assembly passed the Tobacco bill that Sezer had previously vetoed as he believed that the liberalisation process included in it would harm farmers. The unchanged bill ends state subsidies for tobacco farmers, lifts some restrictions on imports of tobacco and essentially paves the way for privatisation of the state-owned tobacco and alcohol monopoly Tekel. Sezer has to approve the bill within 15 days of its passage through the assembly, although he may choose to take the matter to the Supreme Court to have the bill revoked- an unlikely move.
The third important new law was a controversial one concerning recapitalisation of problematic banks and restructuring companies' bank debts. The assembly passed this on January 10th and it will allow for banks with a capital adequacy ratio of 0% to 5% to receive a capital injection from the Savings Deposit Insurance Fund (SDIF), but only if they have at least 1% of market share in terms of total banking assets. Banks with a capital adequacy ratio above the 5% limit will receive seven-year bonds to try and raise that ratio to nine percent. On the same day Dervis encouraged banks and industrialists to separate their activities over the course of a seven-year period.
As these laws have been passed and the anticipated additional loan from the IMF has approached the lira has gained in strength. The central bank rate reached a peak of around TL1.382m per US Dollar on January 10th and the stock market hit a peak of 15 000 points in early January- a 18-month high- although these were levels it could not sustain. As the lira has remained stronger than economists' expectations for the end of the year, analysts have noted that in real terms the Turkish Lira has only depreciated by around 11% in 2001. Aside from the gradual appreciation of the lira in November and December from autumn lows of almost TL1.6m per US Dollar the inflation rate in Turkey has overtaken the currency's depreciation.
Unfortunately political instability threatens to harm much of the progress that has been made in the last few weeks. Of particular concern was the banking law passed on January 10th after Dervis pushed it, as it went through without the attendance of opposition parliamentarians, who have threatened to take the issue up with the Supreme Court. Even the junior members of the coalition, the Motherland Party (ANAP) and the National Movement Party (MHP) criticised the bill, which Dervis defended by claiming that it would strengthen banks and help them finance the national economy. He denied claims that he had only managed to push the bill through by threatening to resign should its passage not be assured.
