Confining bird flu key for Turkey
By Lesley Wroughton, 10 January 2006WASHINGTON (Reuters) - Turkey's economy will not be disrupted as long as the country can confine its outbreak of bird flu, the International Monetary Fund's No. 2 official, Anne Krueger, said as she reflected on the country's rebound from a 2001 economic crisis.
"Suppose for the sake of argument that they can confine this and it doesn't spread, then I am not worried for Turkey," Krueger said in an interview.
"If it spreads, is it going to stop at the Turkish border? Then the worrying gets much more general," she added.
At least two children have died in eastern Turkey after being infected by the deadly virus, the first reported deaths from the disease outside China and southeast Asia. Authorities sealed off areas around Ankara and Istanbul and culled poultry to stop the virus spreading into populated areas.
Health experts have said there is no evidence so far of human-to-human transmission, but fear the H5N1 strain could mutate into a version that can be transmitted easily from person to person and pass into mainland Europe.
The outbreak in Turkey comes nearly five years after a 2000-01 financial crisis that has been followed by a successful recovery with the help of the IMF.
Krueger has called Turkey's rebound remarkable and a success story for the IMF, whose support helped to stabilize the economy and reassure investors of a guiding hand.
"We had to get macro-stability and to do that it required major monetary adjustment, but the question was how to get enough adjustment without further losses in GDP," recalls Krueger, who joined the IMF the year Turkey's economy unraveled.
"The question was at what pace we had to do it so that you got the adjustment but at the same time didn't impose any more difficulties," she added.
Nearly five years later, Turkey's economy is at its strongest -- inflation is at its lowest in 30 years, government debt has declined, and growth has averaged 8 percent over the past three years.
Krueger said Turkey's success was due to the government's commitment to the IMF-backed economic program and the importance to the country of qualifying for European Union membership.
"The government was committed to the program and therefore it attained credibility much faster than it would have otherwise," she said, also noting further challenges ahead to put the economy on still firmer ground.
"If the Turks do most of the things that they are committed to do for the EU entry it will be better for Turkey (whether) they're in the EU or not," she added.
BAD OLD TIMES
"Every day that the course is stayed, it does build confidence. We're getting further and further away from the bad old times," she added.
Krueger acknowledges that Turkey's economy has become less prone to crisis, but said economies can derail at any time.
"The longer they continue with the kinds of policies that deliver macro-stability and growth, the better their reputation and the investment climate," she said.
The IMF has warned that the accumulation of external debt by the private sector and strong foreign capital flows could spell danger if there was a sudden shift in sentiment.
More than 40 percent of Turkey's external debt is owed by the private sector, with the bulk of it at short maturity.
"The problem here, I think, in part is that Turkey is simply becoming a much more attractive investment location and I think in part the current account deficit is being driven by capital inflows," she said. "The only problem is that they're getting large enough that one has to be somewhat concerned."
At the end of the current IMF program, Krueger said she expected Turkey to have more access to private capital markets and its debt-to-GDP ratio would be lower.