The South African Civil Society Information Service

Turkey, the IMF and the G20
1 Apr 2009

This week's G20 meeting in London is meant to be about finding solutions for the global financial crisis. One concrete decision has already been made, i.e., that finance for the IMF has to be increased to help bail out countries affected by the global financial crisis.

Al Jazeera examines Turkey as a case study to assess the impact of the IMF.

Turkey has been in talks with the IMF for a $10bn loan since May last year, when a previous loan expired. Negotiations reached a stalemate in January this year with the Turkish government refusing to accept the stringent belt-tightening conditions proposed by the IMF. However, it is thought that a decision on the loan will  be reached shortly after the G20 meeting.

For Turkey, the deal is turning out to be a contentious issue and the country is divided on whether the loan will be a blessing or a burden.

Many businesses have been destroyed or are struggling from the fallout of the IMF's last loan to Turkey.

Turkish economist,  Erinc Yeldan  argues that a new programme based on the IMF conditionalities would be suicide for the Turkish people.

Turkey's economy is teetering on the brink. Industry is contracting while unemployment is at a record high.

The IMF is not a new player in Turkey, having been involved in the country since 1999. In that decade, Turkey has had three different governments, but just one economic policy - that of the IMF.

Yelden holds the IMF responsible for the Turkish economic crisis. He says: "The public sector, the government, is conditioned to pay its debt to service this debt economy at the expense of the socially excluded, the polarised, the disintegrating middle classes."

For turkey, the most crippling IMF conditions were to cut back on public spending and to raise the interest rate.

Increasing the interest rate made imports cheaper and came at the detriment of small enterprises that found themselves having to compete against foreign imports.

The industries that thrived through this measure were the large "screw driver types", such as the automotive and electronic sectors that rely on the assembling of imported parts. Small, labour intensive companies, which had been the backbone of the Turkish economy were crushed.

One consequence of the IMF's demand to increase the interest rate was that it attracted many foreign investors who were eager to make a quick profit and then leave. It's called financial speculation and had a truly detrimental affect on Turkey's poor and working classes.

Ordinary Turkish people realize that the IMF loan will not benefit them and are strongly against it. However, rich industrialists have much to gain and are supportive of the loan initiative.

Turkey's earlier IMF loans were very stringent. The government had to reign back spending in healthcare, education and pensions -- spending that is crucial when there is no social safety net. Yeldan says social welfare no longer exists in the turkish dictionary (so to speak). In Turkey, people with money get health and education. People who don't have money are at the mercy of the "iron laws" of the market, he argues.

The Turkish government has been negotiating hard with the IMF to relax its conditions and this seems to be paying off. According to Al Jazeera, the IMF is learning that to have any global relevance, it must be willing to change.

If Turkey continues on its current trajectory, says Yeldan, it spells the doom of the county's  industry. Turkey cannot bear the burden of high interest rate costs and cheap imports, with a very poorly linked economy, ending up with exclusion and joblessness, he says.

Al Jazeera also interviewed development economist, Ann Petiffor of the New Economics Foundation to get her perspective of the IMF.

Responding to a question about whether the G20 will force reforms onto the IMF, Petiffor argues that she is not confident that this will happen.

In her view, the IMF needs fundamental reform. 

"There needs to be an alteration between the balance of power between creditors and debtors; between Eurocentric  countries and the rest; and the question is whether or not India, Brazil, China and South Africa, have the clout, at this meeting, to insist on that reform."

She also says "Fewer countries are turning to the IMF. Recently, Korea, Singapore and Brazil needed urgent financing and they went to the US Treasury. They didn't go the IMF. There is an Asian fund as well and I think its quite possible that soon we would have an Asian monetary fund that would allocate resources mobilized inside Asia."

Responding to the fact that the head of the IMF, Dominique Strauss-Khan has gone on record saying that the IMF has made mistakes, Petiffor contends, "I think what was announced last week was a concession. I think the conditionalities are still too tough."

Pettifor argues, "You know what is happening in the United States and in Britain is that we are creating money out of thin air, effectively, to finance our fiscal stimulus. We're borrowing some money, but mainly we're also creating money."

And continues, "Now poor countries aren't allowed to do that. They aren't given the power. In fact, they have to do the revers in order to generate their own money from their own resources. From their own savings, if you like. They have to contract their economies. This is precisely the opposite of what's happening in Britain and the United States and in Europe and Japan. And so there is a grave injustice at this and I don't think that Mr. Strauss-Khan or the current board (of the IMF) has sufficiently changed to take account of these new conditions".

Petiffor concludes that this amounts to "double standards in the interests of a Eurocentric institution that really treats one set of countries in one way and poorer countries and emerging markets in another - and until they fundamentally change that - and they'll only change that by changing the constitution of the fund, I think countries will increasingly ignore the Fund and walk away from it."

Editor's note: Walden Bello also provides an excellent critique of the G20 and the role of the IMF, which you can find here. For coverage of the G20 protests, please click here. For additional analysis about the G20 and the 'broken dollar system', please click here.

You can find this page online at http://sacsis.org.za/site/article/122.19.