Turkey's IMF debt to be paid off

Turkey’s IMF debt was $4 billion and the total external debt was $119 billion in 2000 as the external debt reached $340 billion by the end of April 2013. The private sector owed $226 billion last year, which is two-thirds of the total foreign debt. Turkey will wipe off its International Monetary Fund (IMF) debt this month by paying its last installment. Turkey will also be one of the countries which contribute financially to the IMF with a $5 billion contribution. Turkish Prime Minister Recep Tayyip Erdoğan mentions such developments with pride. The relations with the IMF, however, are only a small portion of the big picture.  The actual foreign debt portrait that also contains the IMF debts is quite different.  Turkey’s debt to the IMF is a very small portion of the total public debt. The IMF debt was $4 billion, while the total external debt was $119 billion in 2000. Two-thirds of the debt was public debt. At the beginning of the 2000s, high inflation was the biggest issue in the Turkish economy. What the IMF had suggested, the prescription of taming the inflation by fixing the exchange rate, was applied but in vain. At the end of 2000 the fixed exchange rate boosted imports, consequently the current account deficit; foreign investors ran away, the American dollar went up and so did inflation following it. Thus, the 2001 economic crisis erupted. Kemal Derviş, Ph.D., was brought from the United States to steer the economy in his capacity as the deputy prime minister.

Derviş and the IMF joined hands. The IMF opened the credit taps to overcome the crisis but prescribed the bitterest pill to Turkey ever in history. It tamed the Treasury with “fiscal discipline,” eliminated bankrupt banks and tamed the system. It cleared the road for privatizations, etc. With the credits it gave, its total credits reached $24 billion. This corresponded to 17 percent of Turkey’s total debt of $130 billion in 2002.

The outcome of the IMF pill came after 2002. The IMF prescription, however, shook people. That was brought to account at the ballot box in the Nov. 3, 2002 elections. The coalition parties – Democratic Left Party (DSP), Motherland Party (ANAP) and Nationalist Movement Party (MHP) – could not even pass the election threshold. The Justice and Development Party (AKP) found itself in the position of being able to form the government alone. The party also found a recovered economy in its lap. From the road the IMF had opened, foreign credits flowed in streams. The economy grew with the foreign credit that started flowing in the AKP era; tax and privatization incomes increased; and the IMF debt started being paid with these. Meanwhile the public sector and especially the private sector borrowed swiftly from markets and the economic wheels were turned with this loan.