The Turkey-IMF Stand-By Accord: a Never-Ending Symphony?

The Turkish government’s handling of the economic crisis continues to draw criticism. Business leaders and investors have been insisting that urgent measures are needed to protect the economy. An expert from Moody’s maintained that without a new IMF program, Turkey could face recession in one or two years (Today’s Zaman, December 2). Since the previous stand-by deal ended in May, the Turkish Industrialists’ and Businessmen’s Association (TUSIAD) has repeatedly called on the government to conclude a new accord with the IMF (Radikal, April 26). Referring to the Organization of Economic Cooperation and Development’s November report, which noted that Turkish economic growth might decline in 2009 and that Turkey needed an injection of foreign capital to respond to the global crisis, TUSIAD Chairwoman Arzuhan Dogan-Yalcindag stated that Turkey was the only country that had failed to take effective measures against the crisis. She added, “In Turkey we only hear speculation about the repercussions of the global crisis. The inability of the political authorities to offer diagnoses and solutions based on a realistic, timely, and comprehensive approach has shaken confidence in the markets” (www.ntvmsnbc.com, December 1).

In response, several press reports said that Turkey was close to sealing an agreement, even citing the total amount of IMF assistance. The Under-Secretariat for the Treasury issued a statement on December 5, however, asking people to trust only the information that came from official channels about “the content, timing, format, duration, and amount of the accord being discussed with the IMF” (www.cnnturk.com, December 5).

The same day, Prime Minister Recep Tayyip Erdogan told journalists that most of the remaining disagreements had been overcome and if the talks with the IMF continued at the same pace, the parties might reach an agreement by the end of the year. In response to mounting criticism, Erdogan said, “Some groups want an accord soon. It is easy for a bachelor to divorce a wife. They never negotiated with the IMF. We are driving a tough bargain with the IMF. We are telling the IMF not to put us in a situation [that would] shut down businesses” (www.ntvmsnbc.com, December 5).

Minister of the Economy Mehmet Simsek said that Turkey-IMF talks had reached an advanced stage, yet Turkey would not formally apply to the IMF before concluding the discussions about the terms. He did not indicate whether the agreement would be precautionary—which is preferred by the Turkish government because it would give Turkey more flexibility about whether to use the funds—or a regular stand-by agreement, which would allow direct access yet impose more stringent rules on the government. Simsek said that the program should serve Turkey’s best interests, contributing to the solution of structural economic problems. He emphasized that “what is important for us here is for the deal with the IMF to increase confidence in these hard times while offering a chance to find foreign currency liquidity whenever it is needed” (Today’s Zaman, December 6).

The government’s resistance to pressure and its hard bargaining with the IMF are driven mainly by two domestic political concerns.

First, since coming to power in 2002 the government has made ending the IMF tutelage over the Turkish economy one of its primary goals. Having insisted that Turkey would not need another stand-by agreement with the IMF, the government is reluctant, for fear of harming its political reputation, to give in to the IMF’s demands (EDM, November 17). Since IMF stand-by arrangements usually impose a heavy burden on various social sectors, democratic governments are averse to structural adjustment programs. Given the approaching municipal elections, the AKP quite understandably is working to obtain an agreement with a minimum number of strings attached to government spending, in order to reduce the negative effects on society and preserve electoral support (EDM, December 3).

This is where business circles are right to ask the government to sign the stand-by agreement to maintain macroeconomic stability and boost confidence in the markets. They also hope that in this way the government could be subjected to budgetary discipline and held back from excessive election spending. Dogan-Yalcindag is therefore seeking to convince the government that asking for the IMF’s support should not be seen as a sign of weakness (www.worldbulletin.net, October 17; Referans, November 11).

Second, the AKP government demonstrates a certain degree of self-confidence that it can tackle the global crisis on its own. It views outside help as a last resort, accepting foreign assistance at a minimum level and only as part of its own program. Erdogan has claimed that several mini-projects initiated by the government were part of its economic package to deal with the crisis. Such projects include provision of interest-free loans to small and medium-sized enterprises, encouraging Turkish citizens to return their overseas investments to Turkey, and postponing tax payments (Radikal, December 5). Through these projects, the government is working to alleviate problems in sectors likely to be hit by the crisis, so that massive unemployment can be avoided.

Commenting on a working meeting he held on December 7 with five ministers responsible for the economy, Erdogan claimed that Turkey would come out of the crisis as the least affected country. If all economic players acted in a spirit of solidarity, he said, they could turn the crisis into an opportunity for Turkey (Radikal, December 8).

Although the government’s reluctance about the IMF deal and its optimism about Turkey’s potential to overcome the crisis might make sense in terms of boosting confidence in the economy, many analysts have grown extremely skeptical of Turkey’s prospects for escaping the crisis. Responding to Erdogan, a senior columnist, Osman Ulagay, maintained that “since the global crisis was not being taken seriously and it could not be managed correctly, production is falling, domestic and external markets are shrinking, liquidity problems cannot be overcome, and many firms have been pushed to the brink of closure.” Ulagay criticized the government’s horse-trading with the IMF and argued that by the time an agreement was reached, the horse might well be dead (Milliyet, December 7).

The Erdogan government, rather than tying its hands with tighter fiscal rules set by a hasty IMF program, is seeking to obtain a better arrangement through a well-negotiated agreement and to use an IMF program as a tool to support its own priorities. It remains to be seen whether it will be able to have its cake and eat it too, when Turkish-IMF talks resume after the religious holidays.