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Turkey set for talks with US and IMF

ANKARA Turkey is set for talks with US and IMF officials on billions of dollars in lending that may be essential to brace a fragile economy against a battering from war in neighbouring Iraq.

Officials insist that any US offer of war aid is separate from discussions on International Monetary Fund lending but markets are tracking both sets of negotiations closely for a resolution before a possible war breaks out.

Both sets of talks are likely to continue over the upcoming week-long public holiday in Turkey.
US Treasury Undersecretary for International Affairs John Taylor met Turkish Economy Minister Ali Babacan yesterday morning to discuss the US war aid.

Officials say the US package will probably be made up of loans and guarantees ranging from $4 billion to $15 billion and designed to protect volatile Turkish markets from the impact of war.
Turkey fears that if war pushes oil prices and borrowing costs higher and hits trade and tourist revenues its economic recovery from a series of crises could be dislocated.
Many analysts think the US lending will be somehow linked to adherence to Turkey"s IMF deal. The IMF team is due in Turkey yesterday to start talks on a long-delayed budget for 2003.

If the IMF is convinced by the ruling Justice and Development Party"s (AKP) spending plans, it could move toward releasing a $1.6 billion tranche from a $16 billion loan pact.
While that cash would be handy, more important for markets would be the sign the IMF agrees with the new government on the future of the pact, in limbo since late last year.
Turkey has been working for months on a budget for 2003 that will produce the primary surplus demanded by the fund.
The primary surplus measures the budgetary balance excluding payments on a hefty debt load and is used by the IMF and markets as a weather vane for the country"s ability to manage its debt.

The consolidated budget for 2003 needs to produce a primary surplus of some 19,500 trillion Turkish lira ($11.9 billion) to meet IMF demands. So far, after two announcements of a set of price hikes and spending cuts, officials have only reached around 15,000 trillion lira.
The IMF team under Turkey desk chief Juha Kahkonen will be asked to approve the numbers already produced and examine another set of measures designed to make up the shortfall. The fact that preliminary data shows the last government failed to meet its targets for 2002 only increases the pressure on the IMF and Turkey to produce thoroughly convincing plans for this year.

'It"s normal procedure for the IMF to examine these numbers, and necessary. After the talks the draft budget will go to cabinent and then to parliament,' an economy official close to the budgetary planning process said.
He said the draft numbers were all 'convincingly conservative' and had, for the first time, been prepared with the participation of chiefs from the social security bodies that so often overspend.