Turkey wins $3bn more from IMF

Turkey's economy has slowed sharply this year

Turkey has won an extra $3bn from the International Monetary Fund to help it shoulder a heavy domestic debt burden.

But in return, the government has had to promise to slash spending by 2% of its gross national product - 5.7 trillion lira ($3.9bn; £2.7bn) - and sell off more state companies.

Turkey's already weakened economy is groaning under the effects of the post-11 September slowdown.

Tourism has slumped, and exports are tailing off. In all the economy is expected to contract by 8.5% this year.

The new money, the third bail-out this year, is the first tranche of a $19bn facility which could be expanded by $10bn in 2002, depending on whether Turkey can live up to its promises.

A lot to live up to

And the promises are challenging.

In a letter of intent to the IMF, confirming the terms of the loan, Ankara has promised to keep its budget in surplus in 2001 and 2002 - not including the cost of servicing debts amounting to 6.5% of GNP.

The government acknowledged that achieving this "requires a substantial effort on our part to identify measures". The budget deficit was predicted to be $10bn this year.

The difficulty is increased by surging inflation, following a decision to let the Turkish lira float in February.

That means a public sector pay deal - to which the IMF objected - will cost even more money.

Sell-off

On top of that, Turkey has promised to raise $1.5bn (£1bn) in privatisation proceeds next year.

But the international situation makes sell-offs of under performing state assets less than attractive.

Disagreements over privatising the telecoms industry were the catalyst which almost killed the IMF agreement in July.

Added to that, promises of heavy cuts in public spending, pruning of public sector jobs, and rising taxes are unlikely to go down well with the Turkish people.

The IMF bail-out of Turkey is strongly backed by the United States and other Western governments, who believe that Turkey is a key strategic partner in the war against terrorism.

That could give the government some leverage in bargaining for a better deal, if the deteriorating world economic situation makes it difficult for Turkey to meet its new targets.