US Clears Way for $8.5 Billion in Loans to Turkey

WASHINGTON–DC (Reuters)–The Bush administration has informed Congress that it is ready to provide Turkey with up to $8.5 billion in loans–a move that could help improve US-Turkish relations after months of bickering over Iraq.

In a letter to key congressional committees obtained by Reuters on Tuesday–the 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 war in neighboring Iraq.

"The US attaches significant importance to a strong–economically stable–and democratic Turkey as a hopeful model for the Islamic world. Such a model is particularly valuable following regime change in Iraq," the letter said.

The State Department told Congress that 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 program could take place as early as Sept. 20–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 program 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.

Turkey has a substantial short-term debt with large monthly debt-servicing requiremen’s. The State Department said the US loans would help meet "these rollover requiremen’s in the near-term."

"Easing its debt-servicing requiremen’s is critical to Turkey’s return to stable economic growth–as well as demonstrating US support to a valued ally," the letter said.

President George W. Bush 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 that the government would decide this month whether to oblige.

Bush signed legislation in April that included the $1 billion in gran’s for Turkey. Officials said that money will be converted into $8.5 billion in loans with a four-year grace period on principal repaymen’s and a 10-year maturity.

But loan talks bogged down as US and Turkish officials haggled over the pace of economic reforms and Turkey’s role in Iraq. In the letter–the State Department said Ankara was "presently on track with its IMF-supported economic program."

US-Turkish military relations suffered a setback in July after US troops arrested Turkish commandos in northern Iraq suspected of plotting an attack on a local Kurdish official–an accusation Ankara denied. The men were released two days later.

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.

"Another economic crisis in Turkey would damage US interests in the region–especially as efforts to stabilize Iraq are under way. US assistance–conditioned on Turkey’s continued adherence to its IMF-backed economic reform program–will help maintain market confidence in Turkey and aid the country’s economic recovery," the letter said.


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