Preliminary meetings were held yesterday in Istanbul on the eve of the IMF and World Bank annual meetings. Expectations are high for these leading international financial organizations bodies in the wake of the Pittsburgh G-20 summit and the continuing global economic downturn.
Global Economic Outlook
One day ahead of their annual meetings, the heads of the IMF and the World Bank said that despite positive developments in the global economy, their aim is to reinforce activist, stimulatory economic policies in the hopes that they will continue.
“We’ve broken the fall of the financial crisis,” said Robert Zoellick, President of the World Bank, in a morning press conference. Dominique Strauss Kahn, Managing Director of the IMF echoed Zoellick’s comments saying “The global economy has turned a corner.” However, both men acknowledged the long-term ramifications of the global recession. “Unemployment is going to continue going up, and it’s going to take a while to come down,” warned Zoellick.
The “long shadow” of unemployment, and the risk posed by a “premature withdrawal from the stimulus”, according to Kahn, require that countries maintain their current level of economic cooperation and work towards improving financial stability through better regulation.
Kahn sees the economic crisis as a mandate for greater IMF power, noting that “this annual meeting may be the start of a new IMF,” one that plays a lead role in this “defining moment in global governance.” In contrast, Zoellick believes that the legacy of this crisis will be “changed economic power relations,” a multi-polar economy that “will be more stable.”
IMF loan to Turkey
Turkey is hosting the meetings for a second time since the annual meetings began, a first for any country outside the United States. Looming over the conference is a potential IMF loan to Turkey, which has become a highly politicized issue.
Although the GDP is down, the public debt has risen sharply along with unemployment in Turkey since the financial crisis took hold. On September 26, Prime Minister Erdogan reinforced previous messages from his government to the IMF, reiterating that there should be no political conditions attached to a loan to Turkey. Economy Minister Ali Babacan, who unveiled Turkey’s medium-range economic plan on September 16, has been arguing that the Turkish economy is doing well without any IMF assistance.
“The Turkish banking system is sound,” Babacan reiterated today in his own press conference shortly after Kahn made his remarks.
Babacan argued that the global downturn has not deeply affected Turkey, and that Turkey was not in a “crisis psychology” because it “did not have any uncertainty in its financial structure”.
The Turkish minister refused to comment on a possible IMF loan, stating that negotiations have been suspended for the duration of the meetings.
Kahn also avoided the issue by saying “The Turkish economy is doing rather well. I’m happy with what’s going on in this country.” According to Kahn, the IMF is “not looking for customers” but was ready to help Turkey if it showed a need for economic assistance.
Istanbul Financial Center Project
Babacan used his press conference to promote a plan that the government is calling the “Istanbul Financial Center Project.” The move aims to capitalize on what Babacan sees as the shift of economic power from west to east. Accordingly, he sees Istanbul as an alternative financial center in the post-crisis climate.
A comprehensive report on the project is being produced by the Turkish Union of Banks. The plan, interestingly, calls for the expanded use of financial derivatives in Turkish markets at a time when many governments are calling for stricter regulations and oversight of complex financial products. Babacan justified the move by saying that this would allow Istanbul to “compete with other global financial centers.”
Five big Turkish unions rejected invitations to attend the IMF meetings to protest IMF political intervention.