Turkey close to new loan

Turks may soon have economic news to celebrate

The head of the International Monetary Fund (IMF) has said he would recommend a new loan for Turkey, as efforts continue to prop up the country's tottering economy.

If the IMF loan is agreed, it will represent the third time that Turkey has been bailed out this year.

IMF managing director Horst Koehler said after an informal board meeting that Turkey's performance under its existing $19bn loan was "very strong", but that he would push for rapid pay-out of the next $3bn instalment, as well as the negotiation of a new standby loan.

Turkey is suffering a budget shortfall of $10bn, largely as a result of its dramatically slowing economy, which has worsened sharply since 11 September.

The Turkish economy is predicted to contract by 8% this year.

Rocky relations

Previous IMF programmes in Turkey have not always run smoothly.

Horst Koehler: Broadly pleased with Turkey's progress

Turkey's current predicament is at least partly the result of an IMF decision to suspend its $19bn loan programme, citing the government's slow progress in implementing key reforms.

Relations have now been patched up, but the IMF has not come up with fresh funds as quickly as the Turkish government would like.

Mr Koehler said that the Turkish authorities were now committed to further efforts on fiscal policy, banking and structural reforms, and to build support among the private sector.

Big money

The new loan could be as large as $12bn, the maximum amount recommended by a team of IMF economists that recently returned from Ankara.

That would take total IMF funds granted to the country this year to more than $30bn.

According to media reports, that money would include $5bn to help offset loan repayments to the IMF due next year -- something Ankara has indicated it wants.

Approval of the loan is now regarded as a formality, since Mr Koehler is generally too cautious to promote policies that have little chance of implementation.

And outside help for Turkey has become a more pressing priority in recent weeks, since its status as the only predominantly Muslim member of Nato gives it a key role in the war against terror.

The government, which had previously been truculent when faced with reform demands, has also started to push through a few key elements of the IMF's policy programme.

Agreement imminent

The loan is likely to be approved within the next few days, as the IMF's management is beginning its annual meeting in Ottawa.

Turkish economy minister Kemal Dervis is due to attend the Ottawa meetings and will then visit Washington next week.

Mr Dervis said that Turkey had agreed to strengthen reform measures in return for the new loan.

The agreement with the IMF involved "taking strong structural and financial measures as of the beginning of 2002 to bolster the economic programme and gradually implement public reforms on government decisions," Mr Dervis said.