Turkey a ‘success story for the troubled IMF’

ISTANBUL - Hürriyet Daily News

If Turkey came out of the 2008 crisis without major harm it is due to the structural reforms that had been done following the 2001 IMF agreement, Professor Taner Berksoy tells the Daily News. DAILY NEWS photo/ Emrah GÜREL

The strict implementation of the 2001 IMF program has played an important role in Turkey’s much-praised economic performance, while it also presents a success story for the international organization whose recipes continues to be controversial, according to a prominent economist.

Turkey paid the last installment of its debt to the IMF last week, ending a period that goes as far back as the 1950s.

Turkey will no longer need the IMF, Professor Taner Berksoy said, but added that additional reforms were necessary in order to continue to grow.

How do you assess Turkey’s relations with the IMF?

Our adventure with the IMF started at the end of the 1950s. We conducted 17 standby agreements until 2001. Yet we have never concluded the programs [foreseen in these agreements]. Nearly all of the IMF programs came due to the bottlenecks in the economy which came as a result of our wrong economic policies.

The 2001 IMF program is a typical one as far as the substance is concerned. Right after it began to be implemented, the government changed in Turkey. The party that came to power [the Justice and Development Party – AKP] has shown great foresight, which I appreciate, by continuing to implement the program until the end.

The IMF is a very controversial institution. The austerity measures that are sought by the IMF not only tighten the belt but also tighten the throat. It therefore attracts reaction from the people.

But the IMF’s programs have also been challenged as to what degree it provides the right recipe to improve ailing economies.

Indeed; the number of countries where IMF programs have succeeded is less than where they failed. But of course one other reason is that countries do not implement the programs in a disciplined way.

So what does it mean now that Turkey’s adventure with the IMF has ended?

It means that we have come so far managing the economy without being in need of the IMF. But that does not mean that we will no longer have to deal with the IMF. If we make big political mistakes – and the biggest mistake is to spend non-existing money, and that is usually done by the state, we might have to go to the IMF. But as of now it does not look this will be the case.

So we need to see this development as something positive.

It is extremely positive. 2001 is a crisis that was created by Turkey itself. Then comes a person [Kemal Derviş] whose word weighed with both the IMF and with the government. That’s why we call it the Derviş plan.

So you believe that the 2001 program differs from the other previous programs?

The design is the same but there was serious difference as far as the implementation discipline is concerned and the AKP continued that discipline. The implementation [before the AKP] was very bold, by the way. Twenty banks were led to bankruptcy. If Americans or Europeans could have succeeded in doing the same, they would have been better off. We in Turkey did it the Ottoman way; we sort of took out the sword and cut it.

But this came with a price to the political parties that accepted the 2001 plan, as they failed to enter the Parliament in 2002. In fact, it opened the way to the AKP.

This led to a total political liquidation. The 2001 crisis was a very deep crisis; it really meant the total failure of the system. This was of course the accumulation of mistakes that were done by successive governments over the eight to 10 years [preceding 2001]. All of these parties that had a responsibility for the past mistakes were eliminated. That also led to one-party rule and this has facilitated the implementation of the IMF programs which are usually more difficult to be implemented under coalition governments. If we came out more or less without major harm from the 2008 global economic crisis, it is due to the 2001-2002 repairs. [Those repairs] have done two things which are very important in republican history. Banks were to be monitored by an independent institution and the Central Bank was made independent, therefore taking it outside of the political sphere. Both means discipline in the public finance system.

So despite the fact that the IMF has been demonized for years by the public, in fact it has played an important role in Turkey’s economic success.

But we need to be careful. The AKP had tremendous luck. From 2002 onward there has been a tremendous inflow of money. Everybody has grown and Turkey has grown, too. Despite implementing the IMF’s tight program, you started growing because the trend in the world was in the direction of growing. Implementing such a tight program in that type of economic weather is great luck. As the economy grew, people did not complain about the IMF program.

Turkey must be a success story for the IMF, too.

That’s correct. But let’s not also forget that at that time, there were not so many countries that were under IMF monitoring and as countries started to become better off due to world expansion, Turkey was nearly the only one to implement the IMF program. That’s a success. As of today, we are now giving the message that we no longer need the IMF.

It must also mean the expression of self-confidence in terms of the economy.

Indeed. The officials believe we will no longer need the IMF – [a view] I also share, so long as we continue the current economic political understanding. And there is no reason not to continue because it was rewarded. The people appreciated it since the AKP increased its votes in the second elections.

What makes you say we will no longer need the IMF? After all, some say there is still need for more structural reforms.

Of course we have problems in competitiveness. We have problems in the education sector. Our labor market is too rigid. But the next governments do not have the luxury of ignoring these problems. We have come to a point, where, also due to the effects of the current [world] crisis, we no longer have other options to make us grow

Some critics say that there is no need to rejoice about the fact that we are no longer indebted to the IMF since we are currently under heavier debts today than compared to 2001.

When you compare that debt to the gross national product, the amount of debt is higher but it is lower proportionality-wise. This type of rationale is right but does not obviously eliminate the danger. So long as we have a current account deficit, there is always risk.

How do you assess the latest decision of Moody’s to improve Turkey’s rating?

When compared to the situation of other developed countries that suffered seriously from the crisis, Turkey’s rating should have already improved. But we have a bad track record: of the 19 IMF standby agreements, 17 were not completed, we passed through six crises between 1988 and 2001 and four of the six were totally self-made. Because of that record, rating agencies did not believe earlier that Turkey was on the right track. So it is a belated decision. But it also has to do with the visit [of Prime Minister Recep Tayyip Erdoğan to Washington].

What does this tell us?

There was a friendly mood there [in Washington]. Perhaps that made an influence. If this is such a coincidence, then some maybe made this coincidence possible.