THE IMPACT OF THE IMF STABILIZATION PROGRAMS ON TURKEY

1. THE IMPACT OF THE IMF STABILIZATION PROGRAMS ON TURKEY

2. 1 OVERVIEW 2 HISTORY OF IMF 3 PURPOSE OF IMF 4 FUNCTIONING OF THE IMF 5 IMF STABILIZATION PROGRAMS 6 STABILIZATION PROGRAMS IN TURKEY 7 CONCLUSION

3. OVERVIEW • In this study is examined that the relationship between the IMF Stabilization • Programs lending and the Balance of Payments and growth prospects • of Turkey. We will discuss the topic with some tables to try to • come better conclusion about the effect of IMF stabilization programs in Turkey.

4. 2) HISTORY OF IMF “On July 1944 - 45 representatives from different countries had agreed on creating an international institution meant for overseeing the monetary systems of every country, mainly the international balance of payments and the exchange rates. Following the macroeconomic policies of its members, the aim of the organization was to stabilize the financial system of the world and maintain the development of its member countries. This agreement was called Bretton Woods agreement because its venue was Bretton Woods in US. At present, there are 186 member countries. The member countries of IMF have benefited from its financial aid and policies.” (http://EzineArticles.com/?expert=Tauqeer_Ul_Hassan)

5. 3) PURPOSE OF IMF “IMF provides assistance to its member countries for correcting balance of payment disequilibrium.” IMF provides assistance to the countries, especially to the less developed countries to overcome BOP difficulties. (www.buzzle.com - Chandramita Bora).

6. 4) FUNCTIONING OF THE IMF “The IMF's resources come mainly from the money that countries pay as their capital subscription when they become members. Quatos broadly reflect the size of each member's economy: the larger a country's economy in terms of output and the larger and more variable its trade, the larger its quota tends to be. Quotas, together with the equal number of basic votes each member has, determine countries' voting power. (See on Table-1) They also help determine how much countries can borrow from the IMF and their share in allocations of special drawing rights(SDR)” (imf.org) (SDR: the reserve currency created by the IMF in 1969).

7. 4) FUNCTIONING OF THE IMF Under aquota reform approved in April 2008, the IMF decided that quotas of emerging market economies should be increased. “They also agreed that future reviews should consider adjustments to quotas to ensure that members' quota shares reflect their relative positions in the world economy” (www.imf.org)

8. Table – 1: Shows countries and their quotas and their vote power. Source: htpp://imf.org/external/np/sec/memdir/members.htm, 18.02.2003

9. 5) IMF STABILIZATION PROGRAMS “The term ‘stabilization’ usually came about because the economy’s balance of payments (BOP) crisis was thought of as spiraling out of control, with inflation increasing, efforts at capital flight intensifying, and debt-servicing difficulties mounting at increasing rates” (Krueger 2000). “As Khan (1990) states that Fund programs are complicated packages of policy measures that have multiple targets, namely improving the current account balance and the overall balance of payments, achieving a sustainable rate of growth, and reducing inflation. Consequently, a typical Fund programs mainly employ monetary measures, exchange rate policies, and fiscal measures, and combine aggregate demand policies, supply-enhancing measures, and relative price policies” (Khan 1990).

10. IMF opportunities collect into three groups; • Stand-by: To solve the problems of the country’s balance of payments • is a member of the support provided. • The country is given 12 to 18 months and every 3 months in installments. • Each regulation prescribed performance criteria are met before payment • is released not been examined. • Repayments should be done from 3 to 5 years. • 2) Extended fund ease: Balance of payments problems caused • by macroeconomic or structural problems, the solution prepared for the • possibility of three-year medium-term programs to support the formatted. • There is installment depending on the performance criteria in this • as in stand-by installment. Repayments should be done from 4 to 10 years. • 3) Other opportunities(ekodialog.com)

11. 6) STABILIZATION PROGRAMS IN TURKEY Turkey has faced scarcity of foreign exchange and balance of payments crisis in different periods since 1946, the date of the first stabilization program. IMF-Turkey relations, the period of devaluation in 1946, 1958 era, 1970 era, the period of January 24, 1980, assessed at different times in the 1990s and 2000s (Demircan ve Ener, 2003: 6). As shown in the following table (Table – 2 ), IMF - supported programs had low completion rates in Turkey.

12. Source : Akdiş, 2001: 13.

13. Turkey stabilization programs features, and the results are presented below: The period of 1950-54 : Between 1950-54 the growth rate of Turkey’s economy has reached %8-9. The bad climatic conditions have caused the decline in agricultural production, national income started to slown down with Foreign Exchange depletion of reserves and the end of positive impact created by the Korean War. Measures taken further worsen the economy and boost the problem of the external balance on Agust 4, 1958 taking reasonable measures to stabilize. (Demircan ve Ener, 2003: 7-8). The development plans and the quest for stability occured in the 1960s. 13 mini-devaluation were completed with the demands of the IMF until 1977 (Karluk, 1999: 400).

14. January 24, 1980; On January 24, 1980 in the structural arragements provided successful such as the liberalization of foreign trade with the stabilization measures, as well as many innovations made in financial markets such as flexible Exchange rate transition, the development of financial markets and the liberalization of the regime. However, economic stability has not been made despite all these reforms. While new govenment’s infrastructure investment increasing public spending these expenditures could not be financed by taxes (Öztekin, 2003: 85). 1994; The crisis in 1994 is a financial crisis and stemmed by instabilities of balance of payments (Şahin, 2002: 224-234).

15. 2000; Turkey was in the growth rate of -7.3 % and 53.2 % inflation rate of quantity in 1999. After the Assian and Russian crises and the earthquake on 17 August, a new stand-by agreement signed with the IMF in December 1999, disinflation program put into combat in 2000 (Güloğlu ve Altunoğlu, 2002: 132). The current account deficit projected on a significant level out in 2000, the narrowing of outsourcing opportunities has led to slown down the increasing in liquidity in the structure of liquidity creation mechanism is based on the input of foreign exchange (HM, 2000:9-10). The banking sector faced with the risk of interest rate after the crisis of November 2000, as well as faced with both the interest rate risk and Exchange rate risk after the crisis of February 2001 (Toprak ve Demir, 2002: 13).The wound area disinflation program have come to the end in November (Uygur, 2001: 21-23).

16. Together with continued uncertainty, the demand for foreign currency stopped at one point and spot markets have little or no sales. The ‘Strong Economy Transition Program’ (SETP) explained with the support of the IMF and World Bank on April 15, 2001. Under the program, the 15 legal regulation was made in the areas of restructuring the financial sector, enhancing government transparency and strengthening public finance, increasing competition and effectiveness in economy, strengthen social solidarity. The debt stock, the current account deficit and real interest rates are still high despite the successes of the program (TCMB, 2000: 12-13).

17. The period of 2002-2004; An agreement was made with the IMF for a new stand-by (19. stand-by) arrangement covering the period of 2002-2004 in December (BDDK, 2001). The program aims to receive secure economy for future crises and lay the foundations of non-inflationary sustainable growth. In the ‘Emergency Action Plan’ prepared by the government in January 2003, in actions of a corporate restructuring and in the field of public management reforms are important (Demircan ve Ener, 2003: 15). Ensuring continuity of the applied program promoted the 12% rate of inflation, developed the average growth rate of 5% (Çolak, 2004: 1-2). Despite the successes of the program, the stock of debt and current account deficit still increases, TL was overvalued and the real interest rates were high. In addition, jobless growth trend caught (Çolak, 2004: 1-2).

18. 7) CONCLUSION When we give an attention to the Table – 1 Turkey’s vote power is so low. As we discussed members’ quato shares reflect their relative positions in the world economy. The counties are participating more powerful on the decisions which is about the stabilization programs terms and conditions. That’s why we can see on Table – 2 the completion rate of the stabilization programs on Turkey is low.

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