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Friday, 13 July, 2001, 10:26 GMT 11:26 UK
Turkey cheers loan resumption
Istanbul stock exchange
Having taken a battering all year, the Istanbul stock exchange is hoping for better times
Turkish financial markets have rallied strongly, after the International Monetary Fund (IMF) and World Bank agreed to resume their lending programmes.

Turkish stocks have taken a battering, and the lira has plumbed a series of record lows, since the IMF suspended an economic rescue package two weeks ago, citing government foot-dragging over vital reforms.

After much uncertainty, the IMF agreed to release a $1.6bn (1.1bn) loan tranche on Thursday evening, followed by the World Bank allowing the payment of $1.1bn in financial aid.

Now, all eyes are on whether the Turkish government abides by its renewed promise to meet strict loan conditions, laid down by the IMF when it first agreed the loan package in May.

The National-100 stock market index bounced by more than 2% in early trading on Friday, and the lira was trading at 1.32m to the US dollar, up from its low of 1.34m in late Thursday trading.

Board games

The release of funds followed the Turkish government's decision to bow to IMF demands for a shake-up of the board of Turk Telekom, the main state telephone company.

Turkish prime minister Bulent Ecevit
Ecevit: Promises to stick to IMF programme
The Turk Telekom board was rejigged in June, but the IMF protested that it remained dominated by inexperienced political appointees.

The government has also accelerated the closure of loss-making state banks, another key IMF demand.

After agreeing the resumption, the IMF warned that it would be monitoring Turkey's progress with especial care.

"The Fund urges the strongest possible execution and unified political leadership behind the programme," said Horst Koehler, IMF managing director.

The Turkish government has promised to toe the line.

"We must carry out the economic programme with determination," said Faik Oztrak, treasury under-secretary.

Political pitfalls

Everything now depends on the willingness of politicians to follow through on the government's promises.

The Nationalist Action Party (MHP), a member of the governing coalition, has continually sabotaged attempts to get the IMF programme back on track.

The party was quiet after Thursday's announcement, but Turkish press reports indicated that it was planning to try to oust Kemal Dervis, the economy minister, from his post.

The party has also refused to acknowledge that its attitude was one of the main factors behind the suspension of funding in the first place.

Prime minister Bulent Ecevit has tackled the MHP in a series of meetings over the past few weeks, but has rarely been able to keep the party to heel in the past.

Crisis postponed?

Nor is Turkey's economic crisis over.

Workers oppose the IMF plans after half a million job losses
The bounce in the value of the lira was only small, leaving the currency well below its value two weeks ago.

In all, the currency has lost almost 50% against the dollar since Turkey's economic crisis began in February this year.

After months of corporate bankruptcies and enforced redundancies, the mood among Turkish workers is grim, sharply limiting the government's freedom to make further IMF-related reforms.

And even with IMF and World Bank money, Turkey may still not prove immune to the gloomy sentiment sweeping emerging markets.

A wave of bad news from Argentina in the past few weeks has turned international investors sour on the financial stability of the less developed world.

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See also:

12 Jul 01 | Business
IMF decides on Turkey loan
09 Jul 01 | Business
Currency nerves hit emerging markets
09 Jul 01 | Business
Turkey nearer to IMF loan
03 Jul 01 | Business
Turkish markets fall on IMF rebuff
13 May 01 | Europe
Turk Telecom faces privatisation
27 Apr 01 | Business
IMF backs Turkey aid deal
28 Feb 01 | Business
Turkish air sell-off delayed
22 Feb 01 | Business
Turkey currency plunge
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