Wiped-out IMF debts and current deficit problem

Wiped-out IMF debts and current deficit problem

The IMF is currently on the agenda again since it wiped out Turkey’s debts. Above all else, it is very important to note that clearing all the IMF debts without having to sign a new standby agreement is quite a positive step for Turkey’s economy.

However, the relationship of the IMF with a country is not bound to a certain party or government. A government might have to make an agreement with the IMF to clear the mistakes made by former governments. Or, an agreement might be required to overcome the misdeeds that have been accumulated over the years.

A government also might have to maintain an agreement made by a former government. Maintaining such an agreement might increase the anger toward the new government, but on the other hand, the new government might obtain a great advantage by benefiting from the former agreement. The current government will go down in history as a ruling power which foresaw the future of the previous agreement with the IMF.

The most significant thing done by the current government is maintaining the agreement with the IMF to the full extent. Signed in 2000, it was the most crucial and comprehensive agreement between Turkey and the IMF. With the help of the global economy conjuncture, the agreement with the IMF resulted in success and, maybe for the first time, a ruling party received many votes since it adhered to an agreement with the IMF. Thus the party maintained its rule with an increase in votes thanks to economic stability.

The most important reason for sustaining economic stability during the global crisis was this agreement signed in 2000. The strong quality of banks also helped stability, as well.

Despite that, it is politically natural to say that the ruling government both benefited from the IMF and ended relations with it.

Financing current account deficit

However, it should be kept in mind that real success is sustaining the economic stability by ourselves, without the IMF. It is clear that the IMF is an organization that we do not normally need and only resort to when we run into trouble. In other words, if we fail, the IMF will be brought to the agenda again.

It should also be noted that the IMF mostly comes into play when a problem regarding the current account deficit, or balance of payments, arises. And it brings austerity measures to the agenda when the debts could not be paid.

In other words, an agreement with the IMF is not the fault of the IMF, but the charge of a country’s ruling authorities who put the country in such a situation. If ruling authorities manage the economy in a way that does not require the IMF, there would be no need for this organization.

Turkey paid its debts to the IMF, but still could not solve the balance of payment problem. As the economy has reached high growth rates as needed, the current account deficit problem arises. We are currently financing this deficit with hot money inflow due to the large liquidity in the global economy. So, the problem does not come to our attention for now.

However, as the developed countries begin growing, liquidity will not be that large, so financing the current account deficit will begin to pose a problem. Hopefully, we will not experience another current account deficit crisis that will bring the IMF to the agenda again.