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Turkey: Economic Recovery Depends On Reforms

Turkey's acute economic crisis appears to have abated with this week's announcement of a support package from the IMF. Analysts now say the ultimate test of Turkey's stability is Prime Minister Bulent Ecevit's resolve in promoting IMF-supported reforms. RFE/RL correspondent Jean-Christophe Peuch spoke with economic analysts who say the worst for Turkey's financial markets is probably over, but it's too soon to claim victory.

Prague, 7 December 2000 (RFE/RL) -- The crisis that has shaken Turkey's financial markets over the past two weeks has subsided with an International Monetary Fund announcement it will provide Ankara with a $10 billion support package.

The quickness with which the IMF responded to the situation immediately boosted confidence in the jittery Turkish markets. Sparked by a liquidity crisis, the markets had been in turmoil that sent interest rates soaring up to 1,000 percent and stock prices tumbling, with billions of dollars drained from central bank reserves.

The IMF package includes $7.5 billion from a short-term loan facility and $2.9 billion from a current stand-by arrangement. It will allow the government to keep the Turkish lira pegged to the dollar and the euro.

But market analysts warn that international aid -- the World Bank has also said that it will consider soon a $5 billion loan to Turkey -- will bring only temporary relief unless the government of Prime Minister Bulent Ecevit takes further steps toward restructuring the country's economy.

Maria Mancini is a senior economist at Deutsche Bank's Emerging Markets Department. Although Mancini admits the situation has improved significantly since the IMF and Ankara came to an agreement, she says it is too early to claim victory.

"This (the IMF aid) should be enough to allay the crisis. On the other hand, I would be careful not to say that the crisis is totally over or, at least, that the situation is radically different now. The situation will remain volatile for a while."

Mancini says it is up to Turkish authorities to accelerate structural reforms, particularly by selling off state assets and improving the banking sector.

Yesterday (Wednesday) Ecevit said his government will announce next week tenders for the sale of just over half (51 percent) of Turkish Airlines and one-third of Turkish Telecom. He also said that Turkey will move soon to privatize its electricity sector.

Privatization started in 1984 under then Prime Minister Turgut Ozal. But it has fallen victim to endless political disputes and strong resistance from opposition parties and from Turkey's traditional system of patronage.

The IMF is also pressing Ankara to take over or close some of the country's 81 banks in return for a promise that the depositors' funds will be guaranteed.

Ecevit said yesterday the government had taken control of the country's ninth-biggest bank, Demirbank. That raises the total number of banks under government administration to 11.

The crisis broke out two weeks ago when foreign and domestic investors started moving money out of the markets after the government launched a criminal probe into the activities of a handful of banks. The investigation followed a series of corruption-connected scandals, which ended with several prominent bankers thrown into jail.

This, in turn, led to inter-bank credit cuts and forced the central bank to inject money into the markets in violation of promises Turkey had given the IMF to keep inflation close or below its 40 percent rate.

A columnist for Turkey's "Star" daily newspaper, Semih Idiz, says he believes the government made the right decision:

"The fact that these people are being arrested, that corruption cases are being researched, are investigated in a way that we haven't seen before in this country, suggests that there is a very significant intention to get the country on the right track -- which is the European Union track -- and to give the investors confidence."

The timing of the crisis is embarrassing for Turkey, which is seeking EU membership. Negotiations between Ankara and the Brussels have stumbled, notably, over the issue of Turkey's dispute with EU member Greece over Cyprus and Aegean territories.

In a gesture of good will, the 15-member bloc announced this week it had modified the reform calendar that outlines the steps Ankara must follow in relations with the EU ahead of formal membership negotiations. But Brussels provided no details of the change.

Francis Nicolas is an investment risks expert at the Paris-based Credit Lyonnais, one of France's top private banks. Like Mancini, he believes that -- as long as the situation does not deteriorate further -- the crisis is unlikely to have negative consequences for relations between Turkey and the EU:

"Relations between Turkey and the EU are developing in a rather positive context. I do not believe this financial crisis will alter the calendar of these relations. I think that it will take time to integrate Turkey into Europe, but I do not believe that recent incidents in Turkey's banking sector will change anything." Many experts see the crisis as a major test for Ecevit's government.

Deutsche Bank's Mancini says a common trait to emerging markets is that tremors like those that just hit Turkey's financial markets usually force governments to take drastic measures to accelerate reforms.

Turkish journalist Idiz believes a good effect of the crisis is that it highlights the need for further reform:

"I am not pessimistic. I think the country will come out of this. And I think that despite losses, financial losses, it will come out a little bit wiser."

He says he hopes the government will take this opportunity to address the structural problems of Turkey's economy.