This first loan is part of $1.35bn in aid for reforms related to the financial and public sectors meant to shore up economic growth and financial stability that will be disbursed in three $450m tranches. The World Bank said that Turkey had fulfilled all of the conditions for the release of the money and that "the programme is proceeding on track."
Some $30bn in loans has been paid or promised to Turkey by the World Bank and the International Monetary Fund (IMF) since the country slid into economic doldrums in February 2001 after a banking crisis ripped through financial markets, lopping half the value from the lira and shrinking the economy by about 10%. A prominent fixture of the IMF deal is reform of the beleaguered banking sector, at the heart of the latest crisis.
The IMF announced on August 7th that it had completed a third review of Turkey's economic performance, allowing the country to draw up to $1.1bn in loans immediately.
However, there are worries that snap polls scheduled for November 3rd could side-track the austerity programme amidst a competitive election climate that will likely change the political landscape. Polls indicate that none of the current parties in power would pass the 10% threshold necessary to enter Parliament and that the controversial conservative Justice and Development Party (AKP), which many in Turkey's establishment accuse of Islamist leanings, is likely to garner about 20% of the vote.
A new country report by Moody's Investors Services says the looming hustings could cast a pall over economic reforms. The report says the last three years' progress could slow in the run-up to and after the elections, according to a statement by Moody's. The report says the country's performance has been good despite the recession, but that the size of public debt is a burden to the country's recovery. Public debt currently stands at about $76bn. The Treasury is scheduled to repay $79.3m in external debt the week beginning August 19th. Since the beginning of August the country has paid back some $296m in external debt.
Many observers consider Kemal Dervis, who resigned from his economy post on August 10th, as key to the country's recovery and essential to securing support from abroad in any future government. The former World Bank official was brought into the government 18 months ago to guide the country towards calmer economic waters, and he is widely credited with having done so.
Markets eagerly awaited the outcome of a meeting on August 20th between Dervis and Deniz Baykal, the leader of the People's Republican Party (CHP), to hammer out a broad alliance of the left. The main Istanbul Stock Exchange closed at 9,829 points, a .93% dip, and the lira dropped to 1 640 600 from Friday's 1 635 000.
Dervis, speaking after the meeting, said the two men were working towards a common "social democratic modern leftist approach." "We support an effective government that will integrate with the economy, but that will also protect people with low incomes." Dervis brushed aside questions as to whether he would join the CHP. The two said they would continue with talks.
Dervis, a non-party technocrat, resigned from his post two weeks ago after his presence in a government he was publicly challenging became intolerable to the coalition partners. Dervis is currently in talks with leaders on the left to unite it under a broad social-democratic banner.
The addition of Dervis in the CHP could offer some added muscle to challenge the AKP, but he has balked previously at entering politics. The CHP was unable to pass the 10% threshold in the last elections in 1999 and is not represented in Parliament.