Yet even more to the point, in Turkey we are now seeing the latest failure in the long line of ill-advised big bailouts. They were set in motion by the Clinton administration in Mexico in 1994, spread to Asia in 1997, rolled on to the Russian devaluation and default in 1998, tore through Brazil and most recently--under the Bush administration--helped wreck Argentina. Now we have come to the souring of Turkey, long prized as America's best friend in the Muslim world.True, the Turkish economy is still afloat. It is even somewhat reformed. But for some time now, the average Turk has been drowning. Thanks to the IMF's stress on high-tax fiscal "discipline" above economic growth and political realities, millions of Turks are out of work and short on hope.
fyi-janet
How did we lose the loyalty of Turkey, and with it that much-wanted northern front for the war in Iraq?It sure wasn't for lack of largesse.Over the past four years, at the clear behest of the U.S., Turkey's troubled economy has received--via the International Monetary Fund and World Bank--more cheap loans than any other country on the planet. Since 1999, the IMF has approved some $30 billion in below-market funding for Turkey, making it one of the IMF's top clients. Over the same period the World Bank has lent Turkey $7 billion at subsidized rates, making it one of the bank's biggest customers, too. At every juncture, meanwhile, until Turkey's turncoat vote last month on troop transit for the Iraq war, the U.S. government had sent the message that Turkey was simply too strategically vital to be allowed to fail. And Turkey's politicians, knowing that the money would pour forth, kept coming back for more.Then, in the dickering over the troop deal, the U.S. threw another $30 billion in grants and loan guarantees on the table. The Turks walked away from it. Why?
All those years of big money and bad IMF advice, for starters. Yes, there were lots of other factors, not least Turkey's desire to join a European Union in which France had just threatened to blackball any applicant that backed the U.S. Yet even more to the point, in Turkey we are now seeing the latest failure in the long line of ill-advised big bailouts. They were set in motion by the Clinton administration in Mexico in 1994, spread to Asia in 1997, rolled on to the Russian devaluation and default in 1998, tore through Brazil and most recently--under the Bush administration--helped wreck Argentina. Now we have come to the souring of Turkey, long prized as America's best friend in the Muslim world.True, the Turkish economy is still afloat. It is even somewhat reformed. But for some time now, the average Turk has been drowning. Thanks to the IMF's stress on high-tax fiscal "discipline" above economic growth and political realities, millions of Turks are out of work and short on hope. In 2001, the Turkish economy shrank 9.4%. This followed on a decision to float the currency, which led straight to a crash of the Turkish lira, halving its value against the dollar and devastating the savings and income of the country's poor and middle class. Although the economy has since begun to grow again, lira policy remains uncertain and unemployment in this nation of 68 million people still tops 11%. "People consume less and less day by day," one Ankara official tells me. "Life is tough in this country for the average Turkish person."If this is what comes of taking billions in aid, small wonder that last November Turkish voters axed the politicians who struck the IMF deals, and gave a big win to the Islam-oriented Justice and Development Party (AKP). The AKP came to power promising to renegotiate Turkey's terms with the IMF, and was clearly leery of any conditions attached to more money from Washington. Referring to the past four years of ballooning IMF funding for Turkey, one high-level European official suggests: "If you had given them less money [then], they would have been more willing to conclude the [troop basing] agreement now."How we got to this point is a cautionary tale of some importance as the U.S. maneuvers for friends in the post-Sept. 11 world. When Turkey borrowed its way into financial crisis in 1999 and came to Washington for help, the first mistake was to start supplying subsidies immediately. Had the U.S. left Turkey's politicians to sort out their own financial mess, the Turks would have had much keener incentives to work out their own routes to reform, routes perhaps less painful for the electorate. Turkey had a truckload of problems, including huge state-subsidized industries, a rotten banking system, large state debts and chronic high inflation. But Turkey's crisis was not one that threatened the world financial system. The massive debt coming due was largely internal. The chief threat was to the domestic politicians who presided over this system, and who were in danger of being voted out of office if Turkey's economy turned into a train wreck.Once the U.S. decided that Turkey's politicians could not be trusted to fix their own mess, the second mistake was to give the IMF (which is heavily funded by the U.S.) the mission of bailing them out. The IMF tends to tie its loans to conditions that favor high taxes and devalued currency--the worst medicine for ailing economies. The fund also likes to meddle in local patronage arrangements, demanding reforms that, when imposed wholesale from outside, too often succeed not in restructuring a system, but in fracturing it. That in turn leads to more crisis, more IMF loans and more worship at the altar of high taxes and budget surplus--all at the expense of the client country's ordinary people, the folks least able to cushion themselves. Recall the nexus of downward spirals and growing IMF programs in Indonesia, Russia and Argentina.
In 1999, the fund lobbed a hefty $4 billion program into the Turkish breach, saying that would do the trick. This came hitched to a series of IMF-prescribed planned devaluations--a "crawling peg" for the Turkish lira. Unschooled in the fine print of Turkish commerce, and operating in the birthplace of Byzantine politics, the IMF found that by December 2000, it had on its hands not a success story but a Turkish banking crisis. That led to another $7 billion or so in IMF lending, plus a lot of stern advice about privatization and pulling in more tax revenue. There followed a currency crisis. The IMF changed course and approved a float of the Turkish lira, which immediately crashed. A million Turks lost their jobs. The IMF threw in another $8 billion or so, followed by an emergency new program providing, net, more than $11 billion in additional funding, and spelling out everything from the rate of the gas tax to exactly how many inefficient state sugar factories should be shut down. By now, Turkey has exceeded its normal IMF borrowing quota by more than 1,600%. Last year the World Bank greatly expanded its own programs and conditions for Ankara, committing $3.5 billion to Turkey in 2002 alone, making it the bank's top client of the year. And last November, the overtaxed, underemployed and unhappy Turks voted out the old and voted in the AKP, which refused America's request for help with its own crisis. Now we have Turkish recalcitrance very likely costing the lives of allied troops fighting in Iraq. Meanwhile, IMF officials are happily explaining that Turkey this year may meet their cookbook standard of a 6.5% primary budget surplus, so all is going well. Next time we deem a valued partner too strategically vital to fail, maybe we should note that turning it into an IMF-World Bank welfare case is a strategy too dumb to repeat.
Ms. Rosett is a columnist for OpinionJournal.com and The Wall Street Journal Europe. Her column appears alternate Wednesdays.
Copyright © 2003 Dow Jones & Company, Inc. All Rights Reserved.
iraq | imf | 9-11 | claudia rosett | stop war! | www.agp.org (archives) | www.all4all.org