Will IMF package for Turkey be efficacious?

By Batuk Gathani

BRUSSELS, DEC. 4. The IMF officials were in Turkey today to negotiate a series of new loans ranging from $2 to 4 billions, which may be speedily approved on December 21, for a `surgical bail out' of the fast faltering Turkish economy.

Turkey is now facing an unprecedented liquidity crunch which has driven interest rates to a record 1700 per cent. Heavy sales of the U.S. dollars to arrest the falling value of currency, has cost Turkey some $6,000 millions in reserves, since the economic and fiscal crises began two weeks ago.

There is also rising concern about the solvency of certain financial institutions. Obviously, the banks are trying to contain the challenges posed by the rising tide of `bad loans' often negotiated to please corrupt officials and politicians. Hence, the Government may have little option but to close down all banks which are currently rated as not viable.

Minus acceptance of this principle, the IMF may not be inclined to approve the desperately needed loans. Under the new rescue plan, Turkey aims to cut inflation from about 44 per cent to single digit by 2002. The stock market has fallen by 40 per cent in two weeks.

European analysts point out that after Argentina, the world is witnessing another potential market financial crisis with loss of confidence in the banking system combined with liquidity crunch. How many banks and financial institutions will be wiped out remains to be seen.

It is also ironical to note that all this is happening during the moderate and business friendly rule of the coalition government led by the Prime Minister, Mr. Bulent Ecevit, which is widely rated as stable and reform minded. How the banks have suddenly become rotten and cash strapped is perplexing as citizens blame corrupt government officials and politicians. It is also debatable if the IMF loans alone will inject new confidence in the economy.

The governor of the central bank, Mr. Gazzo Ercel, claimed over weekend that Turkey had foreign exchange reserves of $18,800 millions and gold reserve of $1,000 millions. He said the reserves could be staked to structure a new era of stability within days. Hence, the urgency for approval of the IMF loans before December end.

In April 1994, a year after the death of President Turgut Ozal, Turkey's economic czar and creator of modern economy, the nation was in similar shambles with the dire spectre of economic collapse coupled with upsurge of Islamic fundamentalism looming menacingly on the horizon.

The then Prime Minister, Mrs. Tansu Ciller - a 48 year old academic - worked on a package of reforms to restore market confidence in her economic management and curb fiscal deficit which ran at 17 per cent of the GDP. The Lira fell dramatically on the eve of the long-awaited austerity package on the economic front.

There was speculation of further devaluation of the Lira and inter-bank rates then rose as high as thousand per cent and then fell at 250 per cent mark. This week, market analysts are predicting a similar scenario.

Six years ago, the government's desperate search for ready cash was highlighted by issue of bills with an interest of 125 per cent. The media speculates about proposed job cuts in the notoriously overstaffed public sector industries and civil service.

Ozal, who died in April 1995, was often rated as the most dynamic leader since Kemal Ataturk who established a secular republic in 1923.

Ozal dominated the political scene since 1983, when he was elected Prime Minister after three years of military rule. Like Ataturk, Ozal had a vision of a modern, vibrant and a European Turkey which would be a full member of the greater European community of nations.

Turkey is still largely an agricultural society but in recent years has developed a sophisticated manufacturing base. It has a toehold in Europe but blends into Asia. Modern Turkey is ostensibly secular but its politics revolves around religious issues. It has a powerful and substantial westernised elite and Istanbul - though not the capital - with a population of nearly eight millions is the major seat of academic life, the arts, business and industry in the region.

Istanbul is also Turkey's most industrialised region producing more than half of the GDP. It now ranks among the most prominent cities. Nearly four million workers live in the E.U. Union countries and part of modern Turkey's affluence is based on their foreign remittances.

Despite the gloss of prosperity in Istanbul and the tourist regions of Southern Turkey, the vast majority of Turkish masses live in poverty and half the population still scratches a living out of the land.

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Section  : International
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