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World Bank provides further $18bn to Turkiye, after return to high interest rates

September 12, 2023 at 7:59 am

The World Bank is seen in Washington D.C., United States [Celal Güneş – Anadolu Agency]

The World Bank announced last week its provision of a further $18 billion in a loan package to Turkiye, following the country’s return to economic orthodoxy.

Speaking to Anadolu Agency on Thursday, the World Bank’s Director for Turkiye, Humberto Lopez, revealed that “In addition to our ongoing $17 billion programme, new operations worth $18 billion will be prepared and presented to the World Bank Group Board of Directors in the next three years”, bringing the total provision to Turkiye to $35 billion.

The money will, according to Lopez, be used for activities in the public and private sectors in order to support a number of initiatives, including climate mitigation efforts and reconstruction efforts in the country following the massive earthquakes which rocked south-west Turkiye and north-west Syria back in February.

Up to two-thirds of the $18 billion are reportedly set to be allocated to the private sector, and would be accessible through means such as direct investments and guarantees.

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Lopez clarified that the massive World Bank loan and top-up is a direct response to the Turkish government’s return to orthodox economic policies, namely the raising of interest rates to combat inflation and calm the depletion of foreign reserves.

Following Turkish President Recep Tayyip Erdogan’s re-election back in May, he surprised many by appointing figures compliant with the global financial system’s economic policies to top positions, such as Mehmet Simsek – a former Wall Street banker – to the position of Finance Minister and Hafize Gaye Erkan to Central Bank Governor, the latter of whom has instituted a benchmark interest rate rise of almost 17 per cent.

Those appointments marked a u-turn from Erdogan’s long-held ‘unorthodox’ economic policies over at least the past five years, the most notorious of which was to keep interest rates low in order to fulfil both religious principles against usury and the belief that low rates would result in lower inflation.

READ: Erdogan accepts steps new Finance Minister will take but maintains view on interest rates