A report by a team of IMF experts had been blocked by Ankara government on grounds that “we can’t allow the subjective assessments of a few novice experts who don’t know Turkey at all to damage the image of this country.” [The report] was finally released.
We don’t know whether the report is a version modified by the Turkish government or whether it is the original. Perhaps the government agreed to this one because it is considerably more optimistic than the one IMF prepared for the G-20 meeting. For example in the unpublished November 2011 report, the growth rate for Turkey in 2012 was forecast at 2 %. In the report prepared for G-20 that rate was lowered to 0.4 %. While our government has been drawing a rosy picture [of our economy], and has been touting Turkey as an [economic] model for the whole world, the reasons behind the rather pessimistic IMF outlook can be found in the details of the experts’ report.
Our government says that the Central Bank is playing a key role and that all of its policies are appropriate and effective. IMF experts however find faults with segments of its policies, calling them ineffective. It contains a few very bitter criticisms.
Here are a few important points the IMF makes in its report:
- Financial policy has to be tightened, and the burden of the current deficit should be shifted from monetary policy to financial policy. Budget performance is based on taxation amnesty and temporary rises in taxes on imports and consumption. There has been no improvement, but rather a deterioration in the structural balance of the budget.
- The crisis in Europe and capital requirements of the European banks will result in reductions of fund transfers to Turkey. This in turn will diminish Turkish imports [to Europe]. Since our production excessively is based on [exports to Europe] growth will experience a sharp downturn.
- MostTurkish banks are owned by European banks. The capital needs of their headquarters will affect their subsidiaries in Turkey, and this will diminish the availability of credit in the domestic market.
- A Reduction in fund transfers from abroad despite the high needs for imports will affect [purchasing power] parity. Increase in parities could instantly disrupt all ratios which at the moment appear promising. As parity increases will lower the dollar value of [Turkish] national income, the ratios of both current deficits and foreign debts to national income will rise.
- Increases in parities will make it difficult for the private sector to repay foreign debts. The squeeze on private sector will negatively affect production and the banking sector.
- There will be negative effects on the profitability and capital stock in the banking sector.
The government and IMF agree on one point: The fate of the economy will be decided by hot money. The government insists hot money will continue to flow in 2012 and hence, its rosy outlook. But, as its vision of Europe darkens, the IMF will become more pessimistic with regards to Turkey.