12 June 2013
Experts are divided whether steps taken by Turkey to retire its debt to the International Monetary Fund can be replicated in the Balkans and elsewhere.
Turkey formally paid off its multi-billion loans last month, inspiring other nations whose leaders and residents have been struggling through the lingering global financial crisis.
Caner Bakir, an international political economist at Istanbul-based Koc University, said it is important to show specific ways Turkey's strategy can be applied to each country rather than say it's simply a reference model.
"We should always remind that imagination without implementation is just ahallucination," Bakir told SETimes.
On May 14th, Turkey paid about $4 billion as the last installment of its IMF loan repayments, ending 19 years of debt to the agency.
Ali Babacan, Turkey's deputy prime minister for economic and financial affairs, agreed each nation had unique circumstances. And, he said Turkey's political stability also was a factor in building a stronger economy.
"Every country has its own circumstances and it is very difficult to copy and paste practices of another country because they have to be adjusted for each country's circumstances," Babacan told SETimes.
Bakir Izetbegovic, a member of the presidency of Bosnia and Herzegovina (BiH), told SETimes that aspects of Turkey's model of economic prosperity can be an example for every country in the Balkans.
"They offer security and stability for private capital of foreign investors who wanted to invest in Turkey," he said. "That is the way how BiH could solve our problems."
By the end of 2012, public debt of BiH amounted to 3.6 billion euros, which is about 34 percent of its GDP, including about 950 million euros to IMF.
Being an EU member country since 2007 and having pledged to abide by EU's financial requirements, Romania last year started to return the money borrowed from the IMF and plans to finish the task by 2019.
Last year, Romanian authorities repaid slightly less than 2 billion euros, equivalent to 1.4 per cent of the country's GDP. Romania is to pay back about 1.1 billion euros this year.
"Basically, the collective effort to return the borrowed money does not come to the whole 19.5 billion [euros] received, but only to half of them since most of the loan went to the state national reserve and Romania only has to return that money it spent through the Ministry of Finance," Aurelian Dochia, former World Bank consultant and an expert at the Romanian Centre for Economic Policies, told SETimes.
"Romania still has to pay attention to not spoiling the macro-economic balance. We cannot afford extravaganzas at this point when we look at the possibility to close another deal with IMF, even if the latter has in the meantime mitigated its initial tough stance on budgetary expenses," he said.
According to the National Bank of Serbia, the nation's debt to the IMF is about 1.6 billion euros.
The relations between Serbia and IMF have been continuing since the founding of the country as an independent state. The last agreement among the parties was adopted in September 2011, but was suspended in February 2012 because of the concerns about the government's determination on reaching public deficit and debt targets.
A "precautionary arrangement" was recently developed with the IMF and negotiations are scheduled to continue in September.
"IMF is the main global financial policeman and it depends on its evaluations, opinions and decisions how international creditors will act toward a country," Dejan Jovovic, a former financial adviser at the Serbian Chamber of Commerce, told SETimes. "However, it is not focused on the country's development directly. Unfortunately, following the IMF request and its restrictive policies, we cannot resolve our main problems like unemployment."
Jovovic also said the IMF presence in Serbia is important as a base for co-operation with other international financial institutions and creditors, and its loans' interest rates are not difficult to repay.
Bakir said Turkey's previous economic problems helped leaders revise the nation's economic strategy. He said it was a window of opportunity.
"In 2001, Turkey passed through its deepest economic and political crisis of the Republican area. In tandem with the shrinking economy by 7.5 percent, the unemployment rate had increased considerably, along with a legitimacy crisis in the parliament. Under these circumstances, the crisis played the role of catalyst for a radical institutionalized macro-economic transformation," Bakir said.
Turkey's treasury was re-organised under a fiscal discipline, bankrupt banks were eliminated from the system, and the tax structure was changed. The flow of foreign investments also increased.
Bakir said each country's success story is tailor-made and should be viewed through individual conditions and that other countries may be unable to apply the necessary fiscal discipline and bureaucratic support seen in Turkey.
"In the past, the banks were mainly financing budget deficit of the government, while now they support the real sector in its investments through the banking credits they provide," he said.