A Memorable Achievement: How Erdogan Repaid Turkiye's Debts to the International Monetary Fund

In the run-up to the pivotal round of Turkish presidential elections on May 28, 2023, President Recep Tayyip Erdogan captivated the audience of over 350,000 citizens assembled at Ankara’s Presidential Complex Square. Radiating an aura of triumph, he delivered a speech that evoked nostalgia for past accomplishments and the nation’s liberation from the constraints imposed by the International Monetary Fund.

President Erdogan reminisced about a notable incident that occurred in 2010, wherein he became embroiled in a confrontation with the Managing Director of the International Monetary Fund, who aimed to exert influence over Turkiye’s political landscape.

“I asked the Managing Director,” Erdogan recounted, “‘Aren’t you collecting loan installments?’ He responded affirmatively, and I asserted, ‘Well, then you have no right to meddle in our political affairs and the future of our nation.’”

Persisting with his narrative, Erdogan emphasized: “I am the Prime Minister of Turkiye,” referring to his position under the parliamentary system at the time, “and your sole responsibility is to ensure the repayment of loan installments.”

The President proclaimed: “We remained resolute, and in 2013, we made our final debt repayment, severing our ties with the International Monetary Fund. Nevertheless, the Republican People’s Party [the opposition] wanted us to reenter the cycle of loans.”

How did the country successfully navigate its way out of indebtedness, considering the challenges it faced?

What are the potential ramifications for the country’s political autonomy and independence in light of its efforts to address its indebtedness?

 

Coups vs. Fund

In 1947, Turkiye became a member of the International Monetary Fund (IMF), coinciding with the organization’s establishment. Throughout its history, Ankara engaged in 19 standby credit agreements with the IMF. The initial agreement occurred in 1961, under the leadership of Prime Minister Cemal Gursel, who assumed office following the military coup of 1960.

These agreements persisted until 1970, leading to Turkiye’s indebtedness to the International Monetary Fund and subsequent heightened interference in its political and economic affairs. The 1970s witnessed a surge in economic turmoil within Turkey, characterized by a severe crisis that brought about escalating poverty rates and unemployment.

The military coup on September 12, 1980, led by General Kenan Evren, further exacerbated the state of the Turkish economy. Inflation rates soared to 137 percent, and the number of unemployed individuals reached approximately 3 million and 6 thousand.

Following the coup, Ankara promptly signed its first long-term membership agreement with the IMF, securing additional loans.

The Turkish economy continued to deteriorate, burdened by external debts, until another military coup took place on February 28, 1997, led by Generals Ismail Hakki Karadayi, Cevik Bir, and Teoman Koman.

The catastrophic consequences of the coup included the collapse of the economic situation, a significant decline in development rates, and soaring unemployment, deficits, and inflation, which ranged between 70 and 90 percent throughout the 1990s.

In November 2000, the IMF intervened urgently, providing Turkiye with $11.4 billion in loans to rescue the deteriorating situation. Ankara began selling numerous state-owned industries in an attempt to achieve budgetary balance.

One notable example of the dire circumstances was the Turkish government’s attempt, under the leadership of Prime Minister (at the time) Bulent Ecevit, to sell Turkish Airlines. Even advertisements were published in newspapers to attract offers for a 51 percent stake in the company at that time.

 

The Path Towards Recovery

In 2001, the stock market in Turkiye plummeted, and there was a significant shift from the Turkish lira to the U.S. dollar or the euro, resulting in the Turkish Central Bank losing $5 billion of its foreign reserves.

Consequently, 15,000 jobs were lost, and the dollar strengthened against the lira, with the value of one U.S. dollar reaching approximately 1.5 million Turkish lira.

The path towards recovery began in 2002 when the Justice and Development Party (AKP), under the leadership of Recep Tayyip Erdogan, assumed power in Turkiye.

At that time, Ankara owed more than $16 billion to the IMF, and severe recessionary waves had pushed the Turkish economy to a very low position in the global economy rankings.

Erdogan adopted a policy of economic and political stability and introduced a rigorous economic reform program that focused on production and development.

This led to a significant jump in the gross domestic product (GDP) from $250 billion to $770 billion annually between 2002 and 2008.

The average income in Turkiye also doubled from $2,800 in 2001 to around $10,000 in 2011, surpassing the income levels of some European Union countries.

However, the most important aspect of the Justice and Development Party’s policy was its adoption of a model of complete liberation from the constraints of the International Monetary Fund.

In the early years of its rule, the government only took two loans under two programs: the first from 2002 to 2005 and the second from 2005 to 2008 (the second loan was $6 billion, of which Turkiye only used $4.5 billion).

At the same time, the Turkish government strongly focused on infrastructure projects that created opportunities for accelerated economic growth.

On May 14, 2013, Turkiye was scheduled to repay all its outstanding debts to the International Monetary Fund (IMF).

The then-Prime Minister, and current President, Recep Tayyip Erdogan, stood before the parliamentary assembly of the Justice and Development Party in Ankara and announced that “a sum of $412 million has been transferred to the Fund,” noting that this amount was the “final installment of Turkiye’s debts.”

Erdogan stated: “Turkiye is no longer indebted to the Fund; on the contrary, we are in talks regarding providing financial support to it.”

He added: “For the first time in a considerable duration, Turkiye has successfully eliminated its debt to the International Monetary Fund, reaching a remarkable milestone.”

According to the Anadolu Agency, this was the first time in 52 years that Turkiye had become debt-free to the IMF.

One of the direct outcomes of Turkiye’s journey to eliminate its debts to the IMF and focus on industrial development was that it rose to the ranks of major economies.

As a result, Turkiye’s economic ranking began to rise, reaching the 13th position globally by 2020 and jumping to the 11th position in 2021 after overcoming the global COVID-19 pandemic crisis.

 

National Security

On March 6, 2021, Bloomberg published a report on Turkiye’s inflation crisis, and President Recep Tayyip Erdogan’s refusal to rely on loans from the International Monetary Fund (IMF).

Bloomberg stated that Erdogan believes that resorting to the IMF would force the government to follow a contractionary spending policy that would halt the wheel of economic growth.

Another issue is that the IMF requires reliance on interest rates, which means that the central bank would be forced to raise rates without a ceiling.

This comes in the context of Erdogan’s strong opposition to raising interest rates and his encouragement to lower them to drive economic growth in the country, which would not be achievable if Turkiye resorts to the IMF, according to the agency.

The crucial point in Erdogan’s vision is the fear of external parties using the IMF card to exert pressure on the Turkish government to make concessions on certain regional political issues.

This was confirmed by President Erdogan himself on August 15, 2022, during his speech to the party’s branch presidents at the national level in Ankara.

At that time, he announced that “Turkiye defends its national interests without fear and achieves the desired results on all platforms, including the United Nations and the North Atlantic Treaty Organization (NATO), thanks to its effective diplomacy.”

Erdogan emphasized that “Turkiye is not a country begging for loans at the doors of the International Monetary Fund.”

He added: “We now possess significant military strength that enables us to carry out operations for our national security without seeking approval from any internal or external entity.”