Terrorism blows Turkey economy off track

WASHINGTON, Oct. 2 (UPI) -- Unlike Argentina, which continues to be plagued by the possibility of defaulting on its debts, Turkey has managed to get back on its feet following a round of financial assistance from the international community earlier this year.

But the terrorist attacks on the United States has been a severe blow for the Asian Minor nation, as it grapples yet again with the flight of foreign capital and soaring interest rates.

In fact, the global economic slump will hurt Turkey's economy so severely that gross domestic product this year could be slashed by up to 8 percent, from its current projection of around 5 percent growth, sending GDP into negative territory, according to Turkish Economy Minister Kemal Dervis.

Meanwhile, GDP in 2002 is likely to be slashed by nearly a full percentage point as a result of the Sept. 11 terrorist strikes and the resulting global economic slowdown, Dervis said.

"So much depends on exactly what happens and how things play out, but there would be a negative impact, at least in the short-term," the economics minister said late Monday, following his meetings with U.S. Treasury Secretary Paul O'Neill and the IMF's First Deputy Managing Director Anne Krueger.

Having suffered a financial crisis late last year and one earlier this year, Turkey as forced to float its currency, which led the lira to halve in its value. The country was, however, able to recover steadily since then following the release of a bailout package led by the IMF.

"By late August and early September, things were turning around and the economy was in a positive mode, attracting more investors," Dervis said. However, the terrorist strikes has led the country into an economic mire once again, and Turkey is unlikely to meet the GDP target rate of 5 percent that it agreed upon with the International Monetary Fund earlier this year, while capping inflation at 20 percent may also prove difficult. That, in turn, would make it difficult for investor confidence in the country to be rekindled.

Dervis said late Monday that Turkey is likely to require additional funding from outside sources, as the country struggles under higher inflation, lower growth, and a plunge in tourism. The government is expected to present a letter of intent to the IMF by the middle of this month to secure another $3 billion in disbursements.

Turkey had already secured $15.7 billion from the IMF, but Dervis, who was a vice president at the World Bank until he was tapped as economics minister earlier this year, said the country will likely require further financial assistance.

"Both the private and public sectors have been affected by the events of Sept. 11, in Turkey and almost every other economy," Dervis said. As a result, Turkey will require more money to meet its economic targets but he added, "there is no financial gap tag yet" for lendings from either the private sector or from multilateral lenders.

At the same time, Dervis pointed out that the raison d'etre for the Bretton Woods institutions is precisely for helping countries that have solid economic policies weather the storms of unpredictability, such as the terrorist strikes.

"Structurally and fiscally, Turkey has a flawless program, and there has been no failure in its performance," Dervis said, adding that the IMF recognizes Turkey's successful efforts to resuscitate its economy.

Both the IMF and the World Bank "will look at the new situation in 2002 and do their to support us, based on a continued strong program," Dervis said.

To this effect, Dervis will be meeting with the IMF's Managing Director Horst Koehler and World Bank President James Wolfensohn as well as its chief economist, Nicholas Stern later this week before returning to Ankara.

It may, however, prove difficult for Turkey to secure further financing from the international community as it is far from alone in suffering the spillover effects of the U.S. terrorist attacks and the subsequent worldwide economic slump. Indeed, the World Bank reported that developing countries overall are likely to see their collective GDP falling by up to 75 basis points as a direct result of the terrorist strikes on New York and Washington.

Prior to the attacks, the agency had forecast GDP of developing countries at 2.9 percent this year, and rebounding to 4.3 percent in 2002.