Foreign Relations of the United States, 1958–1960, Eastern Europe; Finland; Greece; Turkey, Volume X, Part 2

312. Operations Coordinating Board Special Report⁰

Washington, June 18, 1958.

TURKEY’S CURRENT ECONOMIC POSITION

1. The economic position of Turkey continues to become increasingly serious with little evidence that the country’s political leaders really understand the need or the urgency for comprehensive Turkish reform measures. In approaches to the U.S. and to international agencies in connection with a proposed stabilization program, they have emphasized the need for substantial financial assistance. However, the U.S. advised the Turks that they must develop and assure implementation of a stabilization program before consideration could be given to such additional assistance. In recent weeks the Turks have had informal discussions in Washington with the IMF and with representatives of the U.S. Government. The Turks also presented their request for external assistance to the Managing Board of the European Payments Union at its April meeting. Thus far, however, they have devoted greater efforts to seeking foreign aid than to developing a stabilization program. Both the OEEC–EPU and IMF are scheduled to send missions to Turkey in June to examine the over-all Turkish economic situation and explore possible Turkish proposals for a stabilization program. The U.S. Government is following closely the progress of Turkish consultations with these international bodies.

2. Domestic confidence in the Turkish lira is diminishing rapidly. In the first four months of 1958 the black market value of the currency has fallen by one-third. Although Parliamentary pressure for increased budgetary expenditure was held to a minimum and a relatively conservative budget has been adopted, with expenditures in real terms lower than last year, Central Bank credit creation is growing about as rapidly as in 1957 when it rose by 24 percent during the full year. In the first four months of 1958, Central Bank credit has expanded 4.2 percent, compared with 4.4 percent during the comparable period of 1957, and a slight decline the previous year. The amount of currency in circulation is growing at a faster rate than last year. There has been greater stability in the cost of living in recent months, however, with an increase of only 1.7 percent since the beginning of the year, as compared with increases of 6.5 percent and 8.1 percent in the same periods of 1957 and 1956 respectively.

3. On March 31 the Central Bank’s freely disposable cash dollars on hand amounted to only $4.1 million and the Bank was believed to have a temporarily uncovered position in meeting its mid-April payment of the $6.8 million March EPU deficit. As a result of reduced imports, Turkey ran an export surplus equivalent to $16 million in the first two months of 1958, compared with a deficit of $4 million in the first two months of 1957. This forced reduction in imports led to some repayments of foreign debt but did not improve Turkey’s credit capacity to any extent and severe shortage of imported raw materials, spare parts and consumer goods continued to plague the economy.

4. Turkey’s present economic difficulties are caused by a complex of several factors, primarily the following:

a. investment ambitions that exceed domestic savings;

b. subsidization of the current output of the economy; and

c. the accumulation of large foreign short and medium term debts, which call for repayments far in excess of any Turkish repayment capacity.

Inflationary financing of a. and b., accompanied by imposition of artificial price controls which have to be administered and enforced by a thin layer of skilled personnel, misdirection of investment in the absence of a rational over-all development program and creditors’ claims on Turkey’s current export proceeds for payments on debts and arrears have resulted in the shortages, under-production, and disparity between internal and external prices that now exist. The semi-autonomous State enterprises under whose direction the bulk of economic development projects are undertaken have been incurring both capital and current deficits, financed in large part directly or indirectly by Central Bank credit. Turkey’s ambitious municipal redevelopment schemes are also believed to be making heavy calls on Central Bank credit. A meaningful Turk program of economic and financial reform would require broad remedial action to deal with these basic causes.

5. In order to assure POL supplies through the summer, ICA has agreed to allocate the last $15 million of the $70 million Turkish Defense Support program for petroleum. Turkey’s principal—and most competitive—exports, tobacco and chrome, are now meeting strong buyer resistance in US and other Western markets due to their high prices at the unrealistic official rate of exchange.¹

0. Source: Department of State, OCB Files: Lot 62 D 430, Turkey. Confidential. A title page, covering memorandum, a table of selected indicators on the economic situation in Turkey, and six charts are not printed. In the undated covering memorandum, Elmer Staats noted that the Board discussed a June 4 draft of this report at its June 11 meeting together with a draft letter to the Turkish Government containing a “firm restatement” of U.S. policy, and agreed to defer the next OCB report on Turkey until it could survey the results of the IMF and OEEC missions. Apparently the draft was of Eisenhower’s letter to Bayar (Document 311). Minutes of the June 11 meeting are in Department of State, OCB Files: Lot 62 D 430, Minutes VI.
1. A note on the source text reads: “2.8 Turkish lira=1 dollar.”