http://www.nytimes.com/2001/04/27/world/27TURK.html New York Times/International April 27, 2001
U.S. Backs Aid to Turkey Tied to Economic Overhaul By JOSEPH KAHN
WASHINGTON, April 26 — The United States has pledged to support a fresh $10 billion emergency aid package for Turkey's troubled economy, but Treasury Secretary Paul H. O'Neill has warned the nation's leaders that they will not receive any more international assistance if their latest economic overhaul plan fails, people involved in the negotiations said today.
The warning is an early example of the Bush administration's vow to practice tough love during emerging- market financial crises. Mr. O'Neill and other senior Bush administration officials have criticized the Clinton administration for backing repeated bailouts of economies in crisis, often with meager results.
The International Monetary Fund is preparing to announce that it and the World Bank, its sister agency, will loan Turkey about $10 billion to support a new round of market-oriented changes to its financial system. The new loan program comes just two months after the fund arranged an $11.5 billion rescue package for Turkey, but the nation has continued to experience financial turmoil.
Mr. O'Neill played an active role in arranging the terms of the fund's latest aid package, reflecting the importance of Turkey as a sizable emerging market and a strategic ally that is a member of NATO. But Mr. O'Neill warned Kemal Dervis, Turkey's economy minister, that he should design the nation's economic program carefully because the international safety net would be withdrawn after this round of aid.
"The U.S. has made clear that it's three strikes and you're out," said one person involved in the negotiations. The latest aid package would be Turkey's third from international lending agencies in recent months.
As one sign that the flow of aid money to Turkey is limited, the Bush administration has declined to offer the nation any direct aid to go along with the fund's program. The United States, European nations and Japan often provide bilateral assistance on top of loans from the fund as a way of demonstrating broad international involvement in a financial rescue, though the fund's money comes largely from taxpayers in the leading industrial nations.
Under pressure from the Bush administration, the fund also has demanded that Turkey enact a series of economic and financial changes before the fund's board of directors formally votes on whether to approve the new loan package, people involved in the talks said.
The fund often makes such changes conditions of its loans. But the Turkey package puts an unusual emphasis on what the fund calls prior actions, meaning that none of the aid money will be distributed until promised changes are implemented by government officials and Parliament. In previous bailouts, the fund often begins distributing aid quickly, though it sometimes suspends a loan program if a client nation fails to adhere to its reform plan.
To receive the $10 billion in new loans, Turkey has agreed to a list of 15 major changes to its financial and economic system, the people involved in the negotiations said. They include a plan to make the central bank more independent of politicians, allow its currency, the lira, to float freely on international markets, restructure its troubled banking systems, reduce government spending, and arrange more privatization of state-owned companies.
Though the fund has yet to release the details of the aid package, the promised changes in Turkey are typical of fund programs during the Clinton administration. The fund often demands austerity measures combined with market-oriented financial overhauls as the price of its assistance.
Turkey has been hobbled by political and economic turmoil for months. The lira, which began trading without limits in international markets two months ago, has lost half its value. And confidence in the banking system has plummeted amid charges of political corruption.
The instability has severely damaged the reputation of Turkey, which had embarked on an ambitious program to bring its economy up to European standards in preparation for joining the European Union.
Turkey's difficulties are expected to be a major topic of discussion this weekend, when world finance ministers gather in Washington to discuss the world economy. They will also review operations of the fund and the World Bank. [end]