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Turkey remains tied to IMF loans WASHINGTON, Aug. 11 (UPI) -- Fear of terrorist attacks continue to plague Turkey, but that hasn't hampered the International Monetary Fund's upbeat assessment of the country's economy. The IMF's continued support for Turkey is bolstering confidence that it will be able to secure another loan from the agency next year. But the question remains whether more loans from the IMF will actually benefit Turkey in the long run, as it struggles to get its economy back on track on the one hand while trying to stave off terrorism within its borders on the other. For now, though, the Turkish media for one was jubilant over the IMF's latest assessment of its economy. In its report released Tuesday, the IMF lauded the government's efforts to combat inflation and keep spending under control, adding that the country should be able to meet its 12 percent inflation target for 2004. Meanwhile, the agency said that Turkey's gross domestic product growth rate should reach at least 5 percent this year. In short, economic conditions in Turkey are "at their best in decades," the IMF said. That's a far cry from its circumstances just three years ago, when the Turkish economy faced a severe financial crisis due to a growing trade deficit and a weak banking sector, forcing it to devalue its currency. At that time, the lira plunged by almost 50 percent while inflation soared by about 80 percent, and the country faced its worst recession in 50 years. Investors broadly agree that Turkey's economy could have plunged further were it not for the IMF stepping in with $12 billion in fresh loans as well as the release of $4 billion in frozen loans in 2001. Since then, the country's economy has rebounded significantly, even though the IMF warned that "the size of the public debt, its short maturity, and large foreign currency component make Turkey vulnerable to exchange rate and interest rate shocks." Furthermore, the country remains one of the biggest borrowers from the IMF, even as it continues to bid for a place in the European Union. Yet most IMF analysts expect the country to take on more loans from the international agency next year, when their current pact expires in February 2005. A mission of IMF economists are expected to go to Ankara next month to start talks on a new three-year economic program, with many expecting about $10 billion in fresh loans. But just as IMF critics argue that more loans won't necessarily mean better prospects for Turkey, Turkish lawmakers too had to debate long and hard among themselves on whether to get more financial assistance from the agency which places harsh conditions on all its borrowers to make sure they follow the IMF's prescription for economic reform. For one, the government that had negotiated the first loan was led by Bulent Ecevit, and it was unclear whether current Prime Minister Recep Tayyip Erdogan would want to continue that arrangement or not, noted Bulent Aliriza, director of the Turkey project at the Center for Strategic and International Studies, a Washington-based think tank. "They had to think long and hard and debate" before both the prime minister and Economy Minister Ali Babacan both personally pressed for lawmakers to allow them to press ahead with a new standby agreement, Aliriza said. "Now, it's a done deal," even though details have yet to be hashed out by both sides, he added. Some analysts, however, argue that more money from the IMF could do more harm than good to Turkey. "IMF evaluations have proved to be far off the mark...and expectations have been disappointed time and time again," argued Ian Vasquez, director of the Cato Institute's project for economic liberty. "We have to think the IMF approach...or bribing a country to take advice (from international financial institutions)," he added. IMF critics point out that the IMF ultimately has little control over whether a borrowing nation has control over the conditionalities it sets or not. Moreover, they emphasize that once the IMF starts providing funds to one country, they are no longer an impartial observer but have their own money at stake, and thus find it in their own interest to start painting a rosier picture of the country they had lent money to. Of course, many political and economic analysts do not agree with this view, but it is clear that all borrowing countries hope that they can wean themselves off from IMF and other loans eventually. Indeed, CSIS's Aliriza said that had Turkey been able to attract more foreign investment, rather than the $1 billion it actually raked in, the country may not have had to resort to borrowing from the IMF again. "I'm not talking about China levels...even Hungary, Poland, or even Slovakia levels...of $4 billion or $5 billion would have been good" enough for Turkey to stop borrowing from the IMF as of next year, Aliriza said. For that, though, positive economic assessments and fresh loans from the IMF may actually act as a good housekeeping and entice more foreign investors to put money into the country. One issue that cannot be quantified, however, is investors' fears of terrorist attacks in the country. Turkey is the only Muslim nation in the NATO defense pact, and the country is seeing a rise in Islamic fundamentalism that has taken to violence in recent months. On Tuesday, for instance, two Istanbul hotels popular with foreign tourists as well as gas storage complex were bombed by Islamic terrorists. Meanwhile, terrorists bombed synagogues, banks, and the British consulate in Istanbul last year. But Aliriza dismissed the terrorist attacks and the rise of Islamic fundamentalism as well as Kurdish separatism having little, if any, impact on foreign investors' decisions on whether to invest in Turkey or not. "Corporate executives and companies are not targets," and investors regard bureaucratic red tape as a bigger hindrance to committing to Turkey than fear of terrorism, Aliriza said.
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