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Turkey: Markets Fall on IMF Standoff

by Ben HollandAssociated Press
July 6th, 2001

ISTANBUL, Turkey -- Turkish financial markets fell sharply Friday amid fears that the government was making no headway in persuading international lenders to release $3.3 billion in loans that will finance an economic recovery plan.

The International Monetary Fund announced this week it would delay discussion of the latest $1.6 billion installment of a $15.7 billion loan package, saying Turkey had not met all its obligations. The World Bank followed suit by postponing a loan worth $1.7 billion.

Later Friday, President Ahmet Necdet Sezer vetoed a law that would have met a key IMF loan requirement by deregulating the tobacco industry.

The move came after the close of a dismal day for the Turkish markets. The benchmark Istanbul share index fell 9 percent Friday after talks in Washington between Kemal Dervis, Turkey's economy minister, and officials from the IMF and World Bank failed to produce a breakthrough.

In Washington, IMF officials issued a statement Thursday night saying they had "constructive discussions" and hoped Turkey soon would be able to meet loan requirements. But on Friday they said they would have no further comment on how talks were proceeding.

Dervis met meeting Friday with U.S. Trade Representative Robert Zoellick.

The Turkish lira slipped nearly 4 percent against the dollar Friday.

Turkish markets have been jumpy since February, when a crisis sent the lira tumbling nearly 50 percent against the dollar. Since then, thousands of firms have folded and hundreds of thousands of Turks have lost their jobs. In May, the government won IMF backing for a new crisis recovery program.

Investors were alarmed when government leaders hinted Friday they would not take extra steps to meet the IMF's concerns, which center on bank sector reforms and the appointment of directors with business experience to the board of privatization-bound Turk Telekom.

The decision to delay loans was "a great injustice," Prime Minister Bulent Ecevit said Friday, adding that he hoped Dervis who will remain in Washington over the weekend could persuade the IMF to relent.

Ecevit insisted Turkey had met all its commitments on Telekom and bank reforms, and expected the IMF to continue its assistance.

The government has said it will privatize Turk Telekom, the state-run fixed-line telephone company, but has set no timetable for the sell-off.

Meanwhile, Turkey's banking watchdog on Friday announced the liquidation of state-owned Emlakbank, another of the IMF's conditions. Emlakbank's merger with another state bank, Ziraatbank, will go into effect on Monday.





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