Fatih Özatay, PhD - [Archive]

'IMF light' again after nine months 14/09/2009 - Viewed 1312 times

Discussions in Turkey so as to whether or not Turkey should sign an agreement with the IMF are posited over wrong grounds almost for a year. I believe that a substantial part of the opinions set forth in this regard can be reduced into two main groups.

In the first group, there are people who argue that if an agreement is signed, IMF will impose tight monetary and fiscal policy and require numerous structural reforms relevant or not. They argue that in that case, Turkey's economy, which is already in deep crisis, will contract and unemployment will increase further. Thus, they object to an IMF agreement.

People in the second group state that an IMF agreement will give an important signal about economic seriousness both in the country and abroad, and thus will improve the confidence in the economy. In addition, they underline that with the IMF credit, rising budget deficit can be financed more easily and therefore the Treasury will not need to 'seize' this frequently the bank resources that can be directed to private sector. They expect that this way Turkey's economy will recover in parallel with the recovery of the rest of the world.

On 21 and 22 December, I wrote two commentaries on agreeing with the IMF. First is titled: Will the 'IMF light' put an end to our problems? And the second: What can we do in addition to the 'IMF light'? Emphasis on 'IMF light' aimed to remark an IMF not fitting into the ideas of any of the groups. A quotation from the first commentary: "IMF will provide substantial amount of funds. This program will most probably be more flexible about public expenditures; will not set a highly ambitious primary surplus target; and will not insist on two many structural measures. Let us call this program 'IMF light'."

Those two commentaries underlined that due to the crisis, IMF would not insist on programs similar to those in old agreements. It would be expected that the first phase of economic programs in the scope of the agreements would be quite different then old programs.

However, those commentaries did not say "Attitude of the IMF is about to change; we should immediately join the team and sign an agreement." On the contrary, the commentaries tried to find what can be done in addition to the IMF light. It said that, we shall sign an 'IMF light' agreement, but also take additional precautions to solve the problems (encountered back then). Because 'IMF light' could not be expected to open the domestic and foreign credit channel in particular toward the corporate sector.

The second commentary I talked about was to emphasize once again the additional measures I had been mentioning since September 2008. The aim was in particular to open to discussion the mechanisms that will ensure the transfer of a certain proportion of IMF funds to corporate sector so as for them not to shrink further and lay-off more people in the lack of credits; and partially to the banking sector.

Why do I remind these? There are a couple of reasons. However, the common element in all is the deep discomfort of mine with the way we address highly important issues. Objective of the meeting in Brussels I mentioned on last Thursday was to discuss how seriously the IMF changed. What is more, some experts not from the IMF even criticized the IMF saying that hands of politicians are strengthened and that thus they are loosening their actions. This change can satisfy some while some others might say that there is no fundamental change; this is not the point. The thing is that there is a demand for change.

We missed this point; considered the IMF within the framework of its old perception and discussed whether or not Turkey should sign an agreement with the IMF. This is odd and is the first reason for me.

Second, if we could have understood back then that IMF wishes to design different economic programs in the prevalence of the crisis, we could have continued the discussion around the question "can those different programs be a remedy for Turkey's problems?" Since we stick to the wrong discussion from the very beginning, we did not try to answer this highly important question. However, we could have negotiated with the IMF in this context if we had designed some plan in besides the 'IMF light' in the harshest days of the crisis.

So, we come back at the same problem: the obsession for categorizing. They say "we have changed"; they at least wish so for the crisis period. We, however say "Hey, stop there. We have known you different. We are used to your old position. So we assume an attitude based on the old position of yours. We cannot beat our brains for your new position and assume a new attitude; sit down there and hush!"

This commentary was published in Radikal daily on 14.09.2009