Turkey's foreign minister and economy minister are visiting Washington this week (March 25-31) at a time of great economic stress for their country. The question that the United States -- and the international financial institutions -- must decide is which Ankara needs more: financial aid or banking reform.
Washington, 26 March 2001 (RFE/RL) -- Turkey's foreign minister and economy chief are in Washington this week as their country's month-old financial crisis continues without resolution.
On Friday (March 30), Foreign Minister Ismail Cem will meet with U.S. Vice President Dick Cheney, Secretary of State Colin Powell, and Condoleezza Rice, the national security adviser to President George W. Bush.
At the same time, Turkey's state minister in charge of economics, Kemal Dervis, will have talks with officials of the World Bank and the International Monetary Fund, or IMF. Dervis' meeting with Horst Koehler, managing director of the IMF, will take place later today (March 26).
All the meetings are likely to focus on Turkey's financial crisis, which has caused the nation's currency -- the lira -- to lose more than 30 percent of its value in the past month. To help restore its economy, Turkey is seeking $25 billion from potential donors around the world -- including the IMF.
But the fund already has intervened on Turkey's behalf 17 times since 1947. And last week, the IMF refused to do so for an 18th time. It said that what is more important for Turkey than money is sound economic policies and a banking system free of corruption. David Hawley, the chief of the fund's public affairs division, said:
"There has to be progress in addressing what is a key problem for the Turkish economy -- the weakness in the banking sector."
The IMF already has committed $11.4 billion worth of loans to Turkey, with most of this money made available during an earlier financial crisis in November. So far, Turkey has not drawn on $6.25 billion of that credit, and the IMF says it will loan no more to Ankara for now. Michael Deppler, a senior official at the fund, said the IMF would only consider accelerating delivery of loan installments to Turkey and easing restrictions on how it may be spent.
Turkey's latest financial crisis came to a head last month when the country's president, Ahmet Necdet Sezer, and its prime minister, Bulent Ecevit, argued vehemently over government corruption and sharing power. This public display of political uncertainty immediately led to the collapse of the lira.
Brett Schaefer is an analyst of international regulatory affairs with the Heritage Foundation, a Washington think-tank. He says Ankara has done only half the job of addressing the issue of corruption in its financial-services industry. Schaefer told our correspondent that Turkey's parliament has passed laws reforming its banking system, but that its judicial system has failed to enforce them.
According to Schaefer, banking in Turkey is largely unregulated, and therefore open to financial abuse.
"Recently in Turkey, it's been -- I've heard an anecdote where it's a lot easier to get a license to open a bank than it is to open a corner shop. And that's partly the problem. Turkey's banking system is subject to political manipulation, and political connections are far more important than having a good business plan for opening up a bank. And that has led to the current weaknesses [in Turkey's economy]."
Fiona Hill of the Brookings Institution, another Washington think-tank, elaborated on this issue in an interview with RFE/RL. She says the real crisis in Turkey is one of political will. She says there is growing public support for reform in Turkey, but there is also political opposition.
"The Turkish economy and the Turkish political scene are ruled pretty much by the same small group of people. I mean, it's a very tight clique. And so breaking that up will be very hard to do, especially as the people who have to break it up are many of the inside players themselves."
According to Schaefer of the Heritage Foundation, neither the IMF nor the United States should offer to loan or give any money to Turkey because Turkey does not need more money. He says Ankara already has foreign-currency reserves of over $20 billion, which he describes as more than adequate to see it through the current financial crisis. Instead, he agrees with the IMF assessment that Turkey needs to reform its banking system -- particularly by enforcing new regulations.
Schaefer is reluctant to predict how the United States might respond to Ankara's plea for financial aid, but he says Washington is likely to be responsive to any concrete results in reforming its financial industry.
"The Bush administration would certainly be interested in cooperating with Turkey if they showed progress in accomplishing those goals -- but not until they do."
At Brookings, analyst Hill agrees that reform, not more money, is what Turkey needs. But she says that the Bush administration may capitulate and give at least some sort of aid to Ecevit's government. She says that the U.S. president and his senior aides will consider Turkey's importance to America, to Europe, and to NATO -- and this will be their conclusion:
"Can we afford to see Turkey go over the brink? I mean, I don't think so. So the question will be whether they'll reach a critical point where a bailout will seem to be absolutely essential."
So even if the IMF refuses to back down and loan more money to Turkey, Hill says, the United States could give in. And she says it is unclear whether the Bush administration can simultaneously persuade Turkey to enforce the reforms it has enacted.