Turkey pays off debt to IMF as private borrowings surge

Some observers said Turkey, at the end of the day, is a developing economy and that its growth depends on foreign loans to a certain extent. Others argued the ballooning private debt may not be a sustainable development.

Turkey pays off debt to IMF as private borrowings surge

World Bulletin/News Desk

May 14 marked a historic day for the economy as it witnessed Turkey's transformation from debtor to creditor in its 52-year relationship with the International Monetary Fund (IMF).

On Tuesday, the central bank paid the country's final loan installment, around $421 million, to the IMF, freeing Ankara of IMF debts for the first time in 19 years. Undertaking a lender's role in the fund, the government pledged $5 billion in June to the IMF to be used for the European sovereign debt crisis.

The achievement is a significant one, representing the country's improved ability to clear foreign liabilities. Yet, in some circles, the elimination of IMF debt was promoted as the country resetting all of its external debts, a common mistake. A look at the country's private borrowing figures will be illuminating.

As major economies pumped out more stimulus cash to boost growth, lending rates stood at low levels. This saw more Turkish firms and banks opt to secure external loans. The Turkish private sector borrowed $10 billion more from abroad in 2012 over 2011.

Banks borrowed $97.17 billion last year, while the non-financial sector's external debts equaled $114.2 billion in the same period. This represented an approximate $8 billion increase in money Turkish banks borrowed from abroad over a year ago, with a $3 billion increase in private debt.

Some observers said Turkey, at the end of the day, is a developing economy and that its growth depends on foreign loans to a certain extent. Others argued the ballooning private debt may not be a sustainable development. Data from the central bank find Turkey's total external debt had surged to $336 billion by the end of 2012 from $129 billion a decade ago.

The share of private borrowing in total external debt was more than two-thirds at $226 billion in 2012. The latest figures reveal Turkish external debt had reached $340 billion by the end of April this year.

In 2002, Turkish gross domestic product (GDP) stood at $230 billion with the local and external debt/GDP ratio at 75 percent. This figure declined to 36 percent in 2012 when GDP was $786.3 billion. Hailing the government's “success” in resetting IMF debts, Economy Minister Zafer Çağlayan said on Tuesday in Ankara this ratio was 85.3 percent in the eurozone. “We have a better debt to GDP ratio than 24 EU countries,” he added.

Turkey became a member of the IMF shortly after the establishment of the organization in 1945, signing the first stand-by agreement in 1961 and the last one, the 19th, in 2008. Over the 30-year stand-by administration period of its economy, Turkey, having received over $50 billion from the fund, was among the countries to which the IMF provided the biggest financial support.

Turkey did not sign a stand-by deal with the IMF between 1984 and 1994. Following a deal signed in July 1994 that ended in September 1995, the country spent another four years without an IMF loan deal. Between 1999 and 2005, the country signed three separate stand-by deals with the fund.

With 19 stand-by deals, only the final two of which were successfully completed, the IMF has long been deemed a “rescuer” during the Turkish economy's worst times. Certain business circles had long pressured the government to seal a deal with the fund; however, in March 2010 Ankara called for the suspension of prolonged talks over a possible new stand-by deal with the fund.

In the new era of relations with the IMF, the fund's Turkey office is now expected to continue its function as a “consultation mechanism” rather than lender.

Last Mod: 15 Mayıs 2013, 09:38
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