Turkey to test Fund independence

28 January 2003

A geo-political power struggle is emerging over Turkey’s compliance with a host of proposed economic reforms included in a $16 billion IMF loan package. Before November elections which brought the Justice and Development Party (AKP) to power, party chief Recep Erdogan pledged to “re-examine each article of the [IMF] program, and ask for the changes that we deem necessary.” Erdogan later specified that his government wanted to re-negotiate IMF-backed farm policies, indicating that continued government support would be necessary for Turkish sugar producers to access world markets.

After meetings with the new government in early December, Michael Deppler, the Fund’s European Director put a positive spin on developments: “I’ve been quite impressed by the unity of this government. What is nice to see is a consistency of views across the government.” This view may have come from progress made on a massive Fund-sponsored plan to sell off more than $4 billion in state assets including an oil refinery, a petrochemicals firm, the tobacco and alcohol monopoly, and the national airline.

No sooner had it been uttered than there was a breakdown in the “consistency of views across the government”, as a 1 January deadline was missed for meeting yet another Fund conditionality, the establishment of a new system for awarding public works tenders. The World Bank claims Turkey lost more than $50 billion from its failure to introduce such regulation in the 1990s. Opinion within the new government is divided between Abdullah Gul, the prime minister, who favours introducing the new system, and party chief Erdogan. Erdogan, who is likely to take over as prime minister in February, has said the new law would benefit big business to the detriment of smaller contractors.

After a meeting in Istanbul with Turkish government officials on 16 January, IMF First Deputy Managing Director Ann Kreuger sounded a cautious tone: “in the coming weeks, the government needs to take further steps toward ensuring a viable fiscal position, a sound banking system, and an improved business environment.”

Struggles between the government and the Fund are being played out as Turkey prepares to play a key role in a US-led war on Iraq. Turkish Foreign Minister Yasar Yakis has said his country would not abandon ties with Iraq, and public opposition to a military operation is running high. This will make it very difficult for the US to obtain parliamentary approval to station troops on Turkish soil. Whether or not Turkey will be forced to use this bargaining chip in its negotiations with the Fund is likely to depend on the outcomes of behind-the-scenes negotiations between the Fund and the US administration.

Krueger: In Coming Weeks, Government Needs To Take Further Steps

Delay casts doubt on Ankara’s reformist zeal Financial Times, 3 January (subscription)