Turkey's never-ending IMF symphony
By Saban Kardas
The Turkish government's handling of the economic crisis continues to draw
criticism. Business leaders and investors have been insisting that urgent
measures are needed to protect the economy. An expert from Moody's Investor
Services maintained that without a new International Monetary Fund (IMF)
program, Turkey could face recession in one or two years.
Since the previous stand-by deal ended in May, the Turkish Industrialists' and
Businessmen's Association (TUSIAD) has repeatedly called on the government to
conclude a new accord with the IMF. Referring to the Organization of Economic
Cooperation and Development's November report, which noted that Turkish
economic growth might decline in 2009 and that
Turkey needed an injection of foreign capital to respond to the global crisis,
TUSIAD chairwoman Arzuhan Dogan-Yalcindag stated that Turkey was the only
country that had failed to take effective measures against the crisis.
She added, "In Turkey we only hear speculation about the repercussions of the
global crisis. The inability of the political authorities to offer diagnoses
and solutions based on a realistic, timely, and comprehensive approach has
shaken confidence in the markets."
In response, several press reports said Turkey was close to sealing an
agreement, even citing the total amount of IMF assistance. The
Under-Secretariat for the Treasury issued a statement on December 5, however,
asking people to trust only the information that came from official channels
about "the content, timing, format, duration, and amount of the accord being
discussed with the IMF".
The same day, Prime Minister Recep Tayyip Erdogan told journalists that most of
the remaining disagreements had been overcome and if the talks with the IMF
continued at the same pace, the parties might reach an agreement by the end of
the year. In response to mounting criticism, Erdogan said, "Some groups want an
accord soon. It is easy for a bachelor to divorce a wife. They never negotiated
with the IMF. We are driving a tough bargain with the IMF. We are telling the
IMF not to put us in a situation [that would] shut down businesses."
Minister of the Economy Mehmet Simsek said that Turkey-IMF talks had reached an
advanced stage, yet Turkey would not formally apply to the IMF before
concluding the discussions about the terms. He did not indicate whether the
agreement would be precautionary - which is preferred by the Turkish government
because it would give the country more flexibility about whether to use the
funds - or a regular stand-by agreement, which would allow direct access yet
impose more stringent rules on the government.
Simsek said the program should serve Turkey's best interests, contributing to
the solution of structural economic problems. He emphasized that "what is
important for us here is for the deal with the IMF to increase confidence in
these hard times while offering a chance to find foreign currency liquidity
whenever it is needed".
The government's resistance to pressure and its hard bargaining with the IMF
are driven mainly by two domestic political concerns.
First, since coming to power in 2002 the government has made ending the IMF
tutelage over the Turkish economy one of its primary goals. Having insisted
that Turkey would not need another stand-by agreement with the IMF, the
government is reluctant, for fear of harming its political reputation, to give
in to the IMF's demands. Since IMF stand-by arrangements usually impose a heavy
burden on various social sectors, democratic governments are averse to
structural adjustment programs. Given the approaching municipal elections, the
AKP quite understandably is working to obtain an agreement with a minimum
number of strings attached to government spending, in order to reduce the
negative effects on society and preserve electoral support.
This is where business circles are right to ask the government to sign the
stand-by agreement to maintain macroeconomic stability and boost confidence in
the markets. They also hope that in this way the government could be subjected
to budgetary discipline and held back from excessive election spending.
Dogan-Yalcindag is therefore seeking to convince the government that asking for
the IMF's support should not be seen as a sign of weakness.
Second, the AKP government demonstrates a certain degree of self-confidence
that it can tackle the global crisis on its own. It views outside help as a
last resort, accepting foreign assistance at a minimum level and only as part
of its own program. Erdogan has claimed that several mini-projects initiated by
the government were part of its economic package to deal with the crisis. Such
projects include provision of interest-free loans to small and medium-sized
enterprises, encouraging Turkish citizens to return their overseas investments
to Turkey, and postponing tax payments. Through these projects, the government
is working to alleviate problems in sectors likely to be hit by the crisis, so
that massive unemployment can be avoided.
Commenting on a working meeting he held on December 7 with five ministers
responsible for the economy, Erdogan claimed that Turkey would come out of the
crisis as the least affected country. If all economic players acted in a spirit
of solidarity, he said, they could turn the crisis into an opportunity for
Turkey.
Although the government's reluctance about the IMF deal and its optimism about
Turkey's potential to overcome the crisis might make sense in terms of boosting
confidence in the economy, many analysts have grown extremely skeptical of
Turkey's prospects for escaping the crisis. Responding to Erdogan, a senior
columnist, Osman Ulagay, maintained that "since the global crisis was not being
taken seriously and it could not be managed correctly, production is falling,
domestic and external markets are shrinking, liquidity problems cannot be
overcome, and many firms have been pushed to the brink of closure." Ulagay
criticized the government's horse-trading with the IMF and argued that by the
time an agreement was reached, the horse might well be dead.
The Erdogan government, rather than tying its hands with tighter fiscal rules
set by a hasty IMF program, is seeking to obtain a better arrangement through a
well-negotiated agreement and to use an IMF program as a tool to support its
own priorities. The talks with the Turkish-IMF resume after the religious
holidays.
Saban Kardas is an associate instructor at the Political Science
Department, University of Utah, USA.
(This article first appeared in The Jamestown Foundation. Used with
permission.)
Head
Office: Unit B, 16/F, Li Dong Building, No. 9 Li Yuen Street East,
Central, Hong Kong Thailand Bureau:
11/13 Petchkasem Road, Hua Hin, Prachuab Kirikhan, Thailand 77110
