Turkey is currently implementing its 17th stand-by agreement with the IMF, and has been loaned or pledged nearly $31bn by the fund since the country’s economic crisis in February 2001. The most recent loan tranche of $1.1bn, part of a $16.3bn aid package, was approved on April 15th, and the IMF board is scheduled to meet in mid-June to discuss the release of the next tranche. Despite progress in reducing inflation and meeting IMF-backed monetary targets, analysts worry that these efforts may be annulled if the country cannot meet the IMF’s conditions. Treasury Undersecretary Faik Oztrak stated that a significant amount of work needs to be accomplished in order to implement reforms before the IMF loan review. “We have a very packed agenda to pass the second review with the IMF. We are trying to move forward in a way that will deal with the issues foreseen in the programme on time.”
Privatisation remains amongst the most important reforms backed by the IMF, but it has been delayed somewhat because of the dismissal of privatisation chief Ugur Bayar, who was dismissed in April following clashes with the Minister of Privatisation Yilmaz Karakoyunlu over investment options for Turkish Airlines. Karakoyunlu is believed to have garnered support for Bayar’s removal after his older brother entered politics, intending to challenge ruling parties. New privatisation chief Turgut Bozkurt is the former head of Petkim, the state-run petrochemicals company.
As the government scrambles to implement the IMF reforms, one critical factor, the restructuring and privatisation of Turk Telekom, which is one of the conditions of the IMF’s loans as described in a series of letters of intent, remains to be seen. The government hopes to sell the telecommunications company by the end of the year, but legislative stagnation and political disputes have slowed down TT’s transformation to a standard corporate structure and the delays have pushed down the company’s worth. During the telecommunications boom of the mid-90’s, Turk Telekom, as the land-line monopoly, had an asking price of $30-40bn. Currently, the figures discussed are closer to $5bn with a proposed block sale of 49%. Therefore, the government continues to drag its feet, hoping that the telecom sector will boom again. But as privatisation is delayed for TT, its infrastructure continues to deteriorate, with analysts estimating that restructuring the company to European standards will cost as much as the asking price.
To increase competition, the state launched its own mobile phone network, Aycell, which will be sold to whomever buys Turk Telecom. But because of the recent ruling in US courts regarding Uzan-owned Telsim, one of the three leaders in Turkey’s mobile market, acquiring Aycell may not be a worthwhile incentive for investors. On May 9th, the US District Court for the Southern District of New York ordered the wealthy Uzan family to place at least 73.5% of their shares of Telsim into a special court registry. Motorola and Nokia, who are suing the Uzans for defaulting on payments and illegally diverting funds and assets to other family enterprises, are owed nearly $3bn. Analysts also suggest that such a highly publicised case will do little for a country struggling to attract foreign investment.
Legislative stagnation has affected Turkey’s agricultural sector, as well. Turk Seker, the state-run sugar factory, has been inching towards privatisation. Legislation aimed at restructuring the company took six months to be approved by parliament, but was later vetoed by President Ahmet Sezer, who believed that it would adversely affect the half million farmers dependent upon sugar production. Parliament passed the legislation again, and Sezer’s veto was nullified. Turk Seker’s General Manager, Seyit Yucel, stated that the company is continuing to restructure, adding that they are currently focusing on purging the company of redundant assets. Turk Seker’s preparation period has been extended again until mid-May.
The state is also making small strides to privatise its energy sector. After completing the sale of stakes in Petrol Ofisi earlier this year, which raised $167m, Ankara has turned to TUPRAS. Turkish Oil Refineries, Inc. is expected to offer another 17% of shares in coming months, according to Karakoyunlu’s announcement in February, thus decreasing the public’s equity in the company to 51%. In April, Demir Erman, deputy general manager of the Privatisation Administration, reconfirmed that the public offering would be in the second quarter of this year, but market conditions will be a critical factor in its timing. Like Turk Telekom, TUPRAS will require considerable investment in infrastructure, as well as insurance as the company’s primary refinery is in Izmit on a geological fault line.
In the banking sector, there has been some limited progress. Ziraat Bankasi announced on May 10th that it was about to complete its restructuring. Safa Ocak, head of the Joint Executive Board of public banks, stated that from June 1st 2002, Ziraat will pull down agricultural credits to 65% from 60% and the interest rate for foreign exchange credits to 7.5% from 9%. These changes are set to be completed by the end of June. In a similar move, Halk Bankasi announced on May 1st that it has completed its restructuring and is poised to provide credit to both small and medium sized companies. With regards to Halk’s privatisation schedule, Ocak said that they are working with consultants on various models.
One of the critical factors leading to Turkey’s financial crisis was the accruement of debts of state-owned banks, reaching almost $20bn. Bad loans to state enterprises, as well a redundant labour force, forced the banks into the red. Furthermore, because of regulations that protect the savings in private banks and the collapse of 18 banks, Ankara now controls more companies than when privatisation began in the 1980’s, and is estimated to be involved in nearly 65% of the economy.
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