Turkey cuts its budget spending, seeks IMF loan

Turkey's parliament has reduced the budget allocations of most ministries by up to 16 per cent to cut overall spending as the country seeks a loan deal with the International Monetary Fund.

Parliament voted 324-117 to save around 5.5 billion liras ($3.6bn) in the 2009 budget. That is expected to please an IMF delegation due to arrive in Ankara early January. The IMF has long been urging Turkey to cut spending.

The budgets of the defence, justice and transportation ministries were excluded. Turkey hopes to complete the talks with the IMF during January and secure a loan of some $25bn. Turkey has to repay around $50bn of foreign debt within a year.

Central Bank Governor Durmus Yilmaz said Turkey's banking sector was sound thanks to an overhaul of the banking system following a deep financial crisis in 2001. But authorities were pondering how to address a sharp slowdown in the economy amid layoffs and production halts particularly in the country's leading automotive and textile industries. "Today, the debate is whether Turkey needs to use its resources to help producers," Yilmaz said. The slowdown may push the central bank to further cut interest rates. The overnight lending interest rate between banks now stands at 17.5 per cent.

However, the Parliament did not revise some key official projections for 2009, including a target of a 27 per cent rise in exports and an ambitious four per cent growth in gross domestic product.

A recent report by the Organisation for Economic Cooperation and Development said Turkey's growth rate is expected to fall to below two per cent next year. "The budget projections are based on the assumption that there will be no recession in the economy," said Esfender Korkmaz, a lawmaker from the main opposition Republican People's Party.

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