REPORTERNET.COM

Although Turkey has not borrowed from the International Monetary Fund (IMF) since the expiration in May 2008 of its 19th Stand-by Arrangement, the IMF continues to assess annually Turkish economic developments and policies, as required by its “country surveillance” mission under Article IV.

The conclusions of the IMF staff report containing the latest assessment were released in December. Last Friday, the IMF released the full staff report, with analytical and informational annexes, as well as a statement on Turkey by the IMF Executive Board.
The report is mostly critical of recent Turkish economic policies. Its main message is, despite “the dynamic rebound from the 2008-09 global crisis, Turkey's hard-earned resilience, built up following its 2000-01 financial crisis, has been weakened by the recent unbalanced growth episode.” The IMF finds Turkey still prone to boom-bust cycles due to heavy reliance on volatile short-term foreign capital flows, mostly channeled through banks to the private sector, for financing economic growth. Often disagreeing with the recent policies, despite praising the many economic achievements of the Justice and Development Party (AK Party) government since 2002, the report proposes alternative policies to preempt a potential crisis. The IMF is worried about the current account deficit (CAD) that had rapidly risen, financed mostly by volatile short-term capital inflows, resulting from the surge in credit-financed, import-intensive domestic demand. It singles out “loose” monetary and fiscal policies and a large competitiveness gap, as well as Turkey's low savings rate, as the source of the problem. The government, according to the report, accepts some but not all of the IMF's advice. The report aims its major criticism of “loose” macroeconomic policies at the Central Bank's “overburdened” unorthodox and controversial monetary policies pursued since November 2010 (see my columns “Turkish Central Bank aims to hit two birds with two stones” (1), (2) and (3), Dec. 31, 2010, Jan. 3 and 10, 2011). It argues those policies suffer from a “potentially conflicting set of objectives and no clear evidence of effectiveness.” It advises the Central Bank to replace those policies -- intended to discourage short-term carry-trade inflows, extend maturity of bank lending and control domestic credit growth -- with a transparent conventional policy of a single short-term policy interest rate within a tighter inflation-targeting framework. The Central Bank is urged to keep interest rates higher and inflation rates lower to match those in other emerging markets (EMs).


(source: www.todayszaman.com)