The general impression has recently been that Turkey has been stumbling towards the welcome break of the Bayram holiday, with the $12bn additional IMF loan a shot in the arm for a struggling economy. According to an IMF report of February 19th the first review of the new stand-by agreement will begin on March 5th, with a probable $1.1bn in credit to be released after that is completed. The report again praised Turkey for its efforts to reform and restructure its economy, especially when faced with such adverse conditions as the terrorist attacks, and predicted that consumer price index (CPI) inflation would decline to 8% in 2005 and 5% a year later.
The CBT was confident enough of the easing inflationary pressures on Turkey in recent months to reduce the overnight borrowing rate from 59% to 57%, and the one week borrowing rate from 62% to 59% on February 20th. The lending rate of 62% has not been changed but the bank claimed that a nominal appreciation in the Turkish Lira since October 2001 has helped to ease pressure on prices, despite the disappointing figures for January. On the same day the bank announced that its survey of businessmen found that only 28% believed that the wholesale price index (WPI) would increase in the coming three months, and just over 20% thought that the year-end rate would be between 61% and 70%. A day later the governor of the bank Sureyya Serdengecti said that the bank would strive to maintain price stability and meet the inflation target of 35% CPI inflation at the end of the year. He also dismissed arguments that fiscal policy should be relaxed to help the corporate sector, saying that this would increase domestic debt.
The $9.1bn boost from the IMF in early February certainly helped Turkey's domestic debt situation. As a result of early redemption on debt issued to the CBT and the Saving Deposit Insurance Fund the total domestic debt stock fell to TL117qn ($86m) as of February 15th from Tl122qn at the end of last year. The CBT also said that this would reduce by some the TL2.3qn the debt redemption due in 2002. The Treasury redeemed TL1.273qn ($936m) last week, of a total in February of TL4.678qn ($3.44bn).
The government is also looking to boost its revenue in line with the IMF programme, and announced on February 19th that it will sell a 74.75% stake in Vakifbank, Turkey's eighth largest bank. Turkey is to raise $1.5bn in privatisation revenue this year, and with the banking sector so weak the natural source for much of this money is in the sale of state banks. According to Vakifbank five groups, which include the French bank Societe Generale, have been asked to conduct due diligence prior to making an offer for the block sale. The sale of the bank has been on the cards since the mid-1990s, but a series of economic difficulties and government indecision has held up the process.
In other company developments Cadbury Schweppes announced on February 21st that it would acquire a minimum51% stake in Turkey's largest confectionery manufacturer Kent and a majority interest in the distribution arm for around $95m and assumed debt. Two of Turkey's largest football clubs also began trading on the Istanbul Stock exchange on February 20th. Galatasaray and Besiktas had raised $20m and $14m respectively in IPOs last week, selling 16% and 15% of their shares.
But some official figures indicate that while the macro-economy may be faring relatively well, the average Turk is not. The unemployment rate in the fourth quarter of 2001 rose to 10.6%, up from 8% in the previous quarter, and indicated that the rate amongst educated youths in urban areas was a worrying 29.2%. An estimated one million Turks were laid off as a result of the economic crisis that began just over a year ago.
Of further concern to the government have been the recent difficulties with the EU. Aside from EU officials believing hat Turkey's constitutional reforms have not gone far enough to satisfy their demands, the published contents of the e-mails sent by the EU representative in Ankara Karen Fogg back to Brussels have embarrassed the Turkish government. The EU commissioner for enlargement Gunter Verheugen had already warned Turkey's EU permanent representative Nihat Akyol that hacking into EU e-mails was not acceptable, and on February 20th the president of the EU Commission Romano Prodi called Prime Minister Bulent Ecevit to express his concern. According to EU officials he demanded from Ecevit that Turkey make a declaration of its policy regarding the EU in order to prevent damaging relations with EU member countries.