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Tuesday, 3 July, 2001, 10:22 GMT 11:22 UK
Turkish markets fall on IMF rebuff
The Turkish economic outlook has soured after the IMF delayed a crucial loan
The IMF decision has heightened uncertainty in Istanbul
Turkish financial markets fell sharply, after the International Monetary Fund (IMF) postponed a crucial loan.

The Istanbul National-100 stock market index closed its morning session more than 4% lower on Tuesday, and the Turkish lira plunged to all-time lows of about 1.3m to the US dollar.

The IMF announced on Monday that it was postponing a decision to pay out a $1.6bn (1.1bn) loan tranche, part of an $8bn economic rescue package agreed earlier in the year.

The fund cited government foot-dragging on certain key reforms - in particular its failure to close loss-making state banks, and the lack of a thorough shake-up at Turk Telekom, the state telephone monopoly.

The IMF loan may only be postponed for a few days: the fund is due to meet later on Tuesday to discuss progress.

Failure of will

But analysts worry that Turkey's coalition government may lack the political will to push through reform with sufficient determination to please the IMF quickly.

Turkish stocks and bonds are jittery after an IMF loan postponement
Turkish markets have plummeted
Turkey desperately needs outside financial assistance in order to battle the after-effects of a financial crisis, which hit in February this year.

The lira was devalued by 40%, and thousands of Turkish firms have gone out of business since.

The government recently announced that gross national product dropped by 4.2% in the first quarter.

Brave faces

Turkish politicians and business leaders have reacted calmly to the IMF announcement.

Prime minister Bulent Ecevit said he was not surprised, and that the IMF was merely being "excessively meticulous".

Mesut Yilmaz, the deputy prime minister, said he expected the matter to be resolved by the end of the week.

And TUSIAD, the Turkish industrialists' association, said the postponement was understandable.

"The government must implement the programme it prepared in a determined manner and it should do it on time," TUSIAD said in a statement.

The Turkish government has gone some way towards meeting the stringent targets laid down by the IMF as a condition of the rescue package.

Last week, the government appointed a new board to Turk Telekom.

And minutes after the IMF announcement, the government said it was closing down Emlak Bank, a loss-making state bank.

Political problems

But there are doubts about the commitment of the Nationalist Action Party (MHP), a key member of the governing coalition.

The MHP, whose policies incline towards protection of domestic business interests, has opposed some of the free-market reforms demanded by the IMF.

"The MHP haven't even noticed that the money the IMF is offering is of vital importance for Turkey," said Burak Akbulut, head of capital markets at Bayindir Securities.

Coalition members are due to discuss their differences at a leaders' summit later on Tuesday.

The IMF postponement comes at a time of heightened political tension in Turkey.

Last week, the country's highest court banned Virtue, a popular Islamic political party, for activities counter to Turkey's secular constitution.

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See also:

02 Jul 01 | Business
IMF puts off key Turkish loan
11 Jun 01 | Europe
Turkish opposition faces ban
16 May 01 | Europe
Turkey gains $8bn loan
06 Jun 01 | Country profiles
Country profile: Turkey
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