THE IMPACT OF THE
IMF STABILIZATION PROGRAMS
ON TURKEY
1
2
3
4
5
6
7
OVERVIEW
HISTORY OF IMF
PURPOSE OF IMF
FUNCTIONING OF THE IMF
IMF STABILIZATION PROGRAMS
STABILIZATION PROGRAMS IN TURKEY
CONCLUSION
1) 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.
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)
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).
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).
4) FUNCTIONING OF THE IMF
Under a quota 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)
Table – 1: Shows countries and their quotas and their vote power.
COUNTRY
QUANTITY OF THE
QUATO
(MILLIONSDR)
VOTE PERCENTAGE
(%)
USA
37.1490
17.1
RUSSIA
5.945
2.76
SAUDI ARABIA
6.985
3.24
SPAIN
3.049
1.42
PORTUGAL
867
0.41
GREECE
823
0.39
BULGARIA
640
0.31
IRAN
1.497
0.70
TÜRKİYE
964,0
0.45
212.415
100.0
TOPLAM
Source: htpp://imf.org/external/np/sec/memdir/members.htm, 18.02.2003
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).
IMF opportunities collect into three groups;
1) 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)
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.
GOVENMENT
PURPOSE
RESULT
September - 1946
Recep Peker
To open economy and turn
out the restructure the
economy
import exploded, foreign
trade deficit increased.
August - 1958
Adnan Menderes
To retrain inflation and
accelerate growth
Inflation retrained,
the growth has not been
accelerated.
August – 1970 (Stand-By)
Süleyman Demirel
To put an end to economic
stagnation
Growth has increased, but
inflation has also increased.
August – September - 1977
Süleyman Demirel
To download inflation ,
eliminate foreign
exchange gap
Inflation has risen,
current account deficit rose,
growth slowed
March – 1978 (Stand-By)
Bülent Ecevit
To increase exports,
accelerate growth
Economic problems have
increased, crisis turned
into recession
March – 1979 (Stand-By)
Bülent Ecevit
To put an end to
economic crisis
Economy shrank, inflation
has not been prevented.
January - 1980
Süleyman Demirel
To open economy and exit
economic recession
External opening of the
economy was
successful, but the inflation
reached 3 digit numbers
April – 1994 (Stand-By)
Tansu Çiller
To stop the incresing in
internal and external deficit
Inflation exploded,
and the crisis was born in
1994.
January - 1997
Mesut Yılmaz
To avoid inflation
The decision has not been
completed due to early
elections.
December – 1999 (StandBy)
Bülent Ecevit
To curb inflation
Rocked by crises in 2000
and 2001
Source : Akdiş, 2001: 13.
DATE
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).
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).
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).
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).
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).
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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