The International Monetary Fund announced yesterday a $1.6 billion credit to Turkey to help its government reverse a "progressively more critical" economic situation.
It was one of the largest credits ever approved by the IMF.
In April, major western nations pledged a total of $1.16 billion in emergency aid to rescue Turkey from threatened economic and political collapse.
Including restructuring of debt, the overall aid package exceeds the $3 billion that Turkish experts said was necessary for Prime Minister Suleyman Demirel's stabilization program to set the country on a recovery course.
Turkey has been plagued by 20 percent unemployment, 80 percent inflation, lack of hard currency to pay for oil importants and a wave of political violence. The combined impact of these problems was seen as a major threat to the social and politcal stability of the strategic North Atlantic Treaty Organization country in the wake of regional turmoil generated by Iran's upheaval and the Soviet invasion of Afghanistan.
The IMF voiced hope yesterday that Demirel's stabilization program that includes long-term measures such as tax, monetary and investment reforms would enable Turkey to cut is inflations rate and revive its economy.
The aid package, which makes Turkey one of the biggest foreign-aid recipients in the world, represents a broad international effort in which West Germany and the United States played the key roles.
Apart from the IMF standby loan and the combined emergency aid of western industralized nations, Turkey's official creditors are currently negotiating in Paris a rescheduling of debts that would save the Ankara government an estimated $800 million a year.
The rescheduling involves about $2.2 billion owed to foreign governments and about $3.5 billion owed to foreign banks, including almost $1.5 billion to U.S. banks. It is expected to be followed by renegotiation or refinancing of these credits. Turkey's total foreign debt is $12 billion.
Turkey's present fiscal obligations to the IMF stand at about $860 million. Earlier this year Turkey effectively went bankruptcy when it was unable to service its debts at the rate of $900 million annually. The country's oil import bill of $30 million a month used up virtually all of its foreign exchange earnings.
Indications are that initial deliveries of the western aid have halted the economic slide, but it remains unclear whether Demirel's stabilization program can set the economy toward self-sufficiency.
Included in the program are measures to attract foreign investments and encourage exports. Demirel also denationalized mines and cut sharply the benefits enjoyed by state-owned firsms with monopolies on both imports and sales.
The program was accompanied by stringent austerity measures that include a 40 percent devaluation of the lira and price increases on nearly all basic commodities ranging from 50 to 300 percent.
Apart from structural problems, the main reason for Turkey's sharply deteriorating situation over the past three years was the boost in world oil prices. In January, when Ankara exhausted its foreign exchange reserves and was unable to pay for its oil imports, the country virtually ran out of fuel oil and was unable to purchase fuel and materials for industry.
Following Demirel's appeal for emergency aid, the western nations quickly extended the funds in the form of loans and some outright grants. The United States and West Germany pledged the largest amounts, $295 million each; Italy $115 million; France, Japan and European Community $100 million each. Other contributors included Britian, Canada, Switzerland and the Netherlands.