[stop-imf] Turkey, Argentina updates

[Robert Weissman]

Excerpted From: World Bank Press Review
Headlines for Monday, January 27, 2003


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U.S. Offers $4 Billion to Turkey
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The United States, seeking to ensure Turkey's military cooperation in an
eventual war against Iraq, is offering at least $4 billion to compensate
Ankara for economic damage it might suffer as a result of playing an
active role in the U.S.-led coalition, the International Herald Tribune
writes.

"If Turkey helps us in the war, we want to help Turkey with the economic
consequences of its role in that war," a senior U.S. official said Sunday,
speaking on the condition of anonymity.

Separately, a well-placed international financial official said Sunday
that Washington was offering "at least $4 billion, and possibly a great
deal more over a period of three years."

The $4 billion figure has already been rejected as inadequate by Recip
Tayyip Erdogan, chairman of the governing Justice and Development Party
and putative future prime minister. "Some words are going around about 2
billion plus 2 billion," Erdogan said in an interview Sunday. "These types
of amounts with this type of crisis will not solve Turkey's problems."

The Turkish leadership is worried about the domestic political fallout
that could result from being seen as too pro-American by a largely
anti-war Muslim population.

Ankara, already grappling with a deeply troubled economy, is also worried
about billions of dollars of damage to its economy, especially in the
tourism sector, that could result from its involvement in a possible
U.S.-led war.

Washington is also telling Gul that Turkey must push through - within the
next few days - critical economic reforms, including radical cuts in
public spending, if Turkey is to convince the International Monetary Fund
to disburse $1.7 billion.

The International Monetary Fund, worried by fiscal slippage in Turkey's
economic program, warned at the weekend that US compensation in the event
of an attack on Iraq may be insufficient to rescue the country from any
renewed financial difficulties., the Financial Times writes.

A senior IMF official, interviewed at the World Economic Forum in Davos,
said that a primary fiscal surplus [of revenues over expenditure before
interest payments] of 6.5 per cent of Gross Domestic Product continued to
be necessary if Turkey, aided by a $16bn loan from the IMF, was to have a
good chance of securing debt sustainability.

Depending on the budget the new government is due to finalize this week,
the primary surplus, which fell short at about 4.5 percent last year, may
also be below the required level this year.

The IMF-backed program was going very well until the elections were called
last year, said the official. But analysts say that the previous
government, a coalition of three parties, loosened the purse-strings in a
failed attempt to win the November 3 election.

The ruling Justice and Development party (AKP), elected by a landslide,
was then lulled into complacency by an initially exuberant reaction from
financial markets. The government may also harbor exaggerated expectations
of a US bail-out in the event of a war on Iraq.

The US is understood to have offered Turkey a choice of $3bn in grants and
$10bn in loan guarantees or $2bn in grants and $20bn in loan guarantees.

But the IMF official warned that Turkey would not be helped by further
borrowing and said that it was unclear whether US grants would be big
enough to meet its eventual needs.

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IMF Approves $3 Billion Loan for Argentina
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The IMF ended its year-long estrangement from Argentina Friday, as its
executive board approved a short-term financial aid package for the
bankrupt country's government -- but with an extraordinary amount of
dissent, the Washington Post reports (1/25).

According to IMF sources, five members representing about 20 percent of
the voting power of the 24-person board abstained from approving the $3
billion loan. The board, which approves most decisions by consensus,
regards abstentions as sharp signals of disapproval, and it is rare for
more than one or two members to abstain. The abstentions were a symbolic
but potent reflection of the controversy that has swirled around the aid
package, the piece says. It has been widely criticized as a financial
sleight of hand, giving Argentina just enough loans and debt rollovers to
ensure that it can pay the money it owes the IMF over the next several
months.

The IMF has dubbed the package "transitional financial support" because it
is aimed at tiding Argentina over until a new government can take power
after an April 27 presidential election. The support includes the $3
billion loan, plus the deferral until 2004 of $3.8 billion more to "cover
all payment obligations to the IMF through August 2003," the fund said.

Also reporting, the Financial Times (1/25) reports officials at the
meeting said five directors - representing Austria and Belgium, the
Netherlands, the Nordic countries, Switzerland and Australia - declined to
back the deal. Though some shareholder countries routinely abstain from
certain decisions on grounds of sanctions and human rights, yesterday's
abstention was one of the largest in recent memory to arise from a
difference of economic policy judgment.

Many IMF staff including Horst Kohler, the managing director, and Anne
Krueger, his deputy, have been reluctant to endorse the agreement, saying
privately that Argentina had failed to promise sufficient reforms and that
the deal placed the fund's credibility in jeopardy.

The news comes as BBC News Online (1/26) reports Argentine President
Eduardo Duhalde has rounded on the IMF, three days after receiving a
bail-out package from the fund aimed at resolving the country's economic
crisis. Duhalde, in an impassioned speech to world leaders, condemned IMF
"scolding" of recession-hit countries over their policies. "If we cannot
be helped, please keep a respectful silence," Duhalde said. "We are
important countries, we have our own history. We have no need to be used
as an example of what should not be done." He added: "I would not be
truthful if I told you that I am happy with the way the IMF has treated
us."

Managers of the World Bank meanwhile recommended that the Bank's board of
directors grant a $600 million loan to Argentina aimed specifically at
improving the lives of its poorer families, AFP adds. They said the loan
would aid families hit by the 17.8 percent unemployment rate, in a country
where 14.3 million willing and able workers are unemployed.

"We are concerned about the difficult situation faced by many Argentines
and we are committed to help them overcome the crisis," said David de
Ferranti, the Bank's vice President for Latin America and the Caribbean.
"We are encouraged by Argentina's ongoing efforts to resolve its economic
situation and we need to support the continuity of social programs," he
said.  The World Bank had foreseen the loan to aid heads of families last
November, but abandoned it after Argentina defaulted on an $805 million
loan that same month.

In other news, the Wall Street Journal (1/27) reports the Paris Club of
creditor nations may roll over some $474 million in Argentine debt due
between January and August, a spokesman from Argentina's Economy Ministry
said. Argentina will formally request the debt rollover next week, the
spokesman added.

The Paris Club -- an informal group of creditor nations -- generally
grants debt relief when a country has an IMF agreement that is on track
and when the debtor has restructured its obligations to private creditors.
President Eduardo Duhalde's government still hasn't officially started
talks with private creditors to restructure its debt.