US to lend Turkey $8.5 billion

In a move seen as proof of a thaw in US-Turkish relations after months of bickering over Iraq, Washington says it is ready to provide Ankara with up to $8.5 billion in loans.

    President George Bush is aiming to improve relations with Ankara

    But the loan depends on Turkey cooperating with US troops in Iraq and with the International Monetary Fund.

    In a letter to Congress

    on Tuesday, the US State Department said it decided to go

    forward with the aid package to support Turkey's "economic

    reform process" and to cushion the economic shock from the

    Iraq war.

    "The US attaches significant importance to a strong,

    economically stable, and democratic Turkey as a hopeful model

    for the Islamic world.

    Ankara is considering sending troops to war-torn Iraq, despite a statement by Baghdad's interim foreign minister Hoshyar Zebari that Turkish troops could further destabalise the country.

    Turkish foreign minister Abd Allah Gul said on Tuesday Ankara would decide this month whether it would send forces to Iraq.

    Loan conditions

    "Such a model is particularly valuable

    following regime change in Iraq," the letter said.

    The State Department said it was transferring

    $1 billion to the Treasury Department to finance the $8.5

    billion loan package, which will be disbursed in tranches over

    an 18-month period.

    The first payment under the programme could

    take place as early as 20 September, the letter said.

    But before each disbursement, Turkey must meet certain

    conditions, from cooperating with US forces in Iraq to

    fulfilling its obligations under a $16 billion loan programme

    with the International Monetary Fund.

    The funds will be used to service Turkey's external and

    domestic debts, "giving priority, where possible, to debt owed

    to the United States and to international financial

    institutions," the letter said.

    Massive debt

    Turkey has a substantial short-term debt with large monthly

    debt servicing requirements.

    The State Department said the US

    loans would help meet "these rollover requirements in the

    near-term."

    US soldiers were not allowed to
    attack Iraq from Turkish soil

    President George Bush has offered the money to Ankara

    despite its refusal to allow US troops to use Turkish soil

    during the war in Iraq.

    Washington now wants Ankara to contribute troops to a

    peacekeeping force in postwar Iraq, and Turkish Foreign

    Minister Abdullah Gul said on Tuesday the government would

    decide this month whether to oblige. 

     

    Some American lawmakers, still upset at Turkey for refusing

    to open its bases for the invasion of Iraq, have suggested

    holding up US aid in protest.

    But the State Department said Turkey has provided "valuable

    assistance" in Iraq, from facilitating the delivery of

    humanitarian supplies to helping re-supply US forces.

    Zero intolerance

    Meanwhile,

    Turkey is planning to wipe out six zeroes from its inflation-hit currency.

    The Turkish government has started

    technical preparations to remove the zeroes from the embattled

    Turkish lira next year, Finance Minister Kemal Unakitan said on

    Tuesday.

    "We are aiming at inflation of about 12% for the end of

    2004. At that time we are also planning to delete zeroes from the

    lira. The target is six zeroes," Unakitan said.

    Chronic inflation and financial crises have hit the Turkish

    currency for decades.

    As a result, the smallest coin today is worth 25,000 lira, while

    the biggest banknote is of 20 million lira.

    Ankara has in recent months recorded progress in pulling down

    inflation, with the help of a $16 billion deal with

    the International Monetary Fund.

    The inflation rate stood at 24.9% in August.

    SOURCE: Reuters


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