Turkey gets IMF extension

The Turkish economy would suffer a great deal from a long war

Turkey's financial markets will be encouraged by the release on Friday of the latest tranche of the country's IMF loan.

The long-delayed announcement, which has been expected since April, means that Turkey will receive another $475m in economic assistance from the International Monetary Fund.

In addition, the country will receive a one-year extension on the repayment of $11bn in outstanding loans.

Turkey has borrowed $15bn from the IMF to help stabilise its currency over the past two years as it faced its worse economic crisis since 1945.

The IMF's managing director, Horst Koehler, praised the efforts of Turkey to rein in public spending and curb inflation.

"The Turkish authorities have made strong and welcome efforts in recent weeks to implement their program of stabilization and economic reform.. The Government's recent actions bode well for the success of the Fund-supported programme," he said.

Turkey has pledged to run a primary budget surplus of 6.5% of GDP and to reduce inflation below 20%.

It is also pledged to improve banking regulation and privatise its main banks.

War in Iraq

The war with Iraq had threatened to hamper Turkey's economic recovery, especially after Turkey failed to negotiate a huge loan with the United States in return for allowing US troops to use Turkey as a staging base.

In the end, Turkey will receive a $1bn grant, or up to $8.5bn in loan guarantees, from Washington, making the IMF loan more important.

The US Congress approved the funds in April after Ankara decided to open its airspace for the US-led war on Iraq.

US-Turkish relations had taken a nosedive following a decision by the Turkish parliament not to allow the deployment of US troops.

Turkey had been in line for up to $30bn from Washington, in return for allowing 62,000 US troops to be stationed on its soil.

But US-Turkish relations seemed to warm a bit after a visit by US Secretary of State Colin Powell to Ankara, which may have cleared the way for the IMF loan.