 urkey’s
financial markets continue to be under heavy pressure. Equities have
fallen over 50% in dollar terms since May, and the lira has weakened
to 1.6 million lira per dollar, creating 62% inflation.
The Turkish
economy continues to weaken under the weight of high debt levels
and an anti-growth IMF program. Real GDP is likely to fall by 7%
in 2001. On October 11, the government published financing needs
of nearly $13 billion for 2002. With capital flows essentially cut
off, the country is counting on receiving yet another IMF package
to avoid a restructuring of its government debts.
An IMF delegation
arrived on October 11 to review progress (really the degree of deterioration)
under the current program. Economy Minister Kemal Dervis is working
on a plan to cut public-sector spending by 2.5% of GDP for 2002
in the hopes of getting the IMF to add to the existing $17.5 billion
financing program. As with other anti-growth IMF programs, the better
approach would be for Turkey and the IMF to focus on sound money,
low inflation, and low tax rates rather than high interest rates,
a weak lira, and fiscal austerity during a recession.
Turkey’s markets
had rallied for a few hours on speculation of new IMF money, but
the lift was quickly cut off. Signals from the IMF and the U.S.
are urging caution on Turkey’s ability to obtain additional financing:
— On October 11, U.S. Treasury Undersecretary John
Taylor said that any Turkish request for additional financing would
be considered in the context of the series of loans that Turkey
is already drawing on.
— On October 12, IMF managing director Horst Koehler noted
that discussions about a new loan for Turkey are “premature.”
The economic
data, meanwhile, continue to be extremely weak:
— August industrial production fell by 10% year-over-year,
the seventh straight year-over-year decline.
— Despite the lira’s devaluation, tourism won’t grow in 2001
and will probably remain weak in 2002.
— CPI inflation continues to climb. September’s 5.9% price
increase brought year-over-year inflation to 61.8%.
In its April
economic program, Turkey and the IMF expected -2% growth in 2001.
The reality looks like a -7% shrinkage. In its latest discussions
with the IMF, the government is assuming a 4% growth rate in 2002.
That growth rate does not seem feasible given the anti-growth nature
of the economic framework. The IMF focus is on fiscal austerity
rather than stabilizing the lira to bring down interest rates. As
a result, economic conditions should continue to deteriorate.
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