Turkey's IMF emancipation deserves cautious cheer
Dubai, May 15, 2013
The author is a Reuters Breakingviews columnist. The opinions expressed are her own.
Turkey is finally standing on its own two feet. That's the message Ankara is sending to international investors with the payment this week of its last loan instalment to the International Monetary Fund - all $422 million of it.
It is the first time in 19 years that Turkey is free from debt to the fund, and it crowns a decade of reform under Prime Minister Tayyip Erdogan and his ruling Justice and Development Party (AKP).
Turkey was in 2002 where many of its European neighbours are today. Its economy was reeling from a banking crisis, and the public purse was stretched. The AKP inherited from the previous government $24 billion of debt to the IMF, conditioned on a plan to fix public finances. Erdogan used the crisis as a chance to do what his predecessors had been unable to: cut spending and start a major privatisation programme.
Independence from the fund will help Turkey sell its juicy investment story. Total government's net debt has fallen from 71 percent in 2002 to 28 percent of GDP at the end of last year, according to the IMF. Turkey's banks are amongst the best capitalised in Europe and the country's five-year credit default swaps already trade inside Italy's and South Africa's, suggesting Ankara will soon win a second investment grade credit rating.
Yet Turkey's shortage of natural resources and a low rate of domestic savings mean it relies on foreign funding to fuel its growth now more than before. The country's current account deficit was 0.3 percent of GDP in 2002 and it is expected to rise from 5.9 percent last year to 8.4 percent in 2018, according to the IMF.
Turkey's economic strength now allows it to contribute to the fund's resources - it has pledged $5 billion to that effect. As long as global risk appetite endures, the country can afford to turn itself from debtor to lender. That very condition is also why breaking free from IMF debt only deserves a cautious cheer. – Reuters