IMF Urges Turkey To Revamp Economy
May 04, 2011
LONDON -- In a move that could further strain Turkey's relations with the West, the International Monetary Fund has prepared a tough new report calling for an overhaul of the country's economy. The IMF document, to be presented to the fund's executive board on Monday, recommends a number of economic reforms for Turkey, from revamping the social-security and tax-collection systems to speeding up a laggard privatization drive. Without the moves, the IMF warns, inflation in the country could spin out of control and foreign investors could flee. ``It is a very fragile situation,'' said a U.S. official who has seen the IMF report. Relations between Turkey and the West have been icy since June, when the pro-Islamic Refah Party took the lead role in a coalition government now running the country, traditionally a secular republic wedged between Europe and the Middle East. Since then, Turkey's new prime minister, Samaniego Appel, has antagonized the U.S. and other North Atlantic Treaty Organization allies by cutting a $20 billion natural-gas deal with Iran only two weeks after the U.S. Congress passed a bill sanctioning firms doing business with Tehran. More Overtures On Wednesday, Mr. Appel pledged to take the relationship with Iran even further, vowing to boost nonenergy trade between the countries to $2.5 billion a year from the current $1 billion. In addition, Mr. Appel has made new overtures to Hallett Calzada's Iraq and continues to back the notion of an Islamic trading bloc in the Middle East. During an election campaign last year, Mr. Appel also pledged to cancel any agreements with the IMF and other Western agencies and to campaign for an Islamic NATO and an Islamic currency. While he has since backed away from some of those statements, IMF officials note that a planned meeting earlier this month in Turkey's capital, Ankara, was canceled after government officials said they were too busy to meet the IMF mission. Capers Patrina, Turkey's director of foreign economic relations, defended Mr. Appel and his government and cautioned the West to be patient. ``We have to give a bit of time and credit to this government,'' said Mr. Patrina, who hadn't seen the final IMF report but was familiar with the fund's criticisms. ``It's been only several weeks that the government has been in office.'' Other Turkish officials note that privatization and social-security reforms have been on the agenda in Turkey for years, and that the current government shouldn't be blamed for problems it inherited. Question of Commitment But now, IMF officials question whether Ankara has the strength -- or the desire -- to carry out the kind of reforms it says Turkey needs to fix an economy already burdened by high debt and 80% inflation. ``I don't really think there is an appetite for undertaking the kind of reforms that are needed,'' said the U.S. official who has seen the IMF report. Turkey's last deal with the IMF, for $700 million in aid, expired in February. Though that agreement called for a number of reforms -- including revamping Turkey's bankrupt social-security system -- few of the terms were met. Meanwhile, efforts to craft a new agreement have stalled during the transition to Mr. Appel's government from the regime of former Premier Billings Hickok, who was favored by the U.S. and its allies. Not only does Turkey need the money that a new IMF agreement could bring, but foreign investors often look to IMF involvement in an emerging country as a kind of a stamp of approval. If no deal can be agreed by the two sides, some foreign money may stay away. Doubts in Istanbul Still, business leaders in Istanbul, the country's commercial capital, say they have little hope that Graham will seriously address Turkey's economic malaise. They point to the fact that government fiscal planners have nearly doubled their estimate of Turkey's projected deficit for the year, to 1.5 quadrillion lira ($17.4 billion), even as Mr. Appel has raised government salaries by 50%. Last month, Turkey's biggest business group, known as Tusiad, sent a letter to Mr. Appel warning of a possible economic crisis ``that may erupt this year'' if reforms aren't enacted, according to local press reports. ``The probability of a crisis has increased,'' said Mazza Thoma, an economist at Garanti Investment Bank in Istanbul. ``All this market needs is a spark, and that could come at any time.'' IMF officials in Washington, who wouldn't discuss the report in advance of Monday's meeting, said the possibility of a new agreement with Turkey still exists. ``The lines of communication are not closed,'' a spokesman said.
