Markets welcomed the accord - a draft letter of intent covering the delayed first two reviews of the IMF-backed programme - which was reached even though parliament has yet to pass key changes to Turkey's lumbering social security system.
"The IMF board is expected to meet in December and release some $1.6 billion in funds under the first and second reviews," Economy Minister Ali Babacan told a news conference at the end of talks with IMF officials in the Turkish capital.
The first tranches had been scheduled for release in June and September but were delayed after parliament failed to pass the reforms on time. Babacan said he now expected the assembly to complete the legislation in February.
"The IMF is cutting the government significant slack here. They are allowing the government to delay approval of the social reforms until 2006," said Bear Stearns economist Timothy Ash.
A previous $19 billion deal which expired in February helped Turkey recover from deep recession triggered by a 2001 financial crisis, bringing chronic high inflation down to single digits.
The economy grew some 10 percent last year and Babacan said 2005 growth was in line with an official target of five percent, supported by construction and investment outlays.
Financial markets have rallied strongly on the back of the recovery and have been further boosted by the start of EU accession talks on October 3. The main share index was up 1.34 percent on Tuesday, while bonds and the lira were also firmer.
The IMF praised the government for submitting to parliament last week a draft budget reinforcing the country's commitment to tough economic policies under the IMF-backed programme. "The government has put together a very strong budget for 2006," IMF Turkey desk chief Lorenzo Giorgianni told the news conference.
"The budget maintains a primary surplus target of 6.5 percent of GNP (gross national product) despite the expectation that Turk Telekom and (oil refiner) Tupras will be privatised and hence no longer contributing to the budget surplus."
Outlining the government's economic forecasts, Babacan said he did not expect any divergence from the targeted 6.5 percent primary surplus, which excludes interest payments on the country's large debt stock and is closely watched by the IMF.
Babacan said the current account deficit was seen at around six percent of GNP this year and no change was expected in 2006.
Ankara will begin official inflation targeting in 2006 and the government will send an income tax reform bill to parliament by the end of the year, Babacan added.