ANKARA – Turkish consumer price inflation in December came in below expectations, rounding off a year that has seen inflation fall from 68.5 percent to 29.7 percent as Turkey implements a $16-billion IMF rescue program. Official figures yesterday showed a monthly CPI rise of 1.6 percent, giving an annual rate of 29.7 percent, well within a year-end IMF-backed target of 35 percent. «This is the lowest rate for 20 years and undercuts the 35 percent IMF-inspired end-year target,» said Tim Ash of Bear Stearns. The State Statistics Institute said wholesale price inflation (WPI) showed a monthly rise of 2.6 percent for an annual rate of 30.8 percent in December. A Reuters poll of 27 bankers and analysts had forecast monthly CPI of 2.4 percent and monthly WPI of 2.1 percent. «CPI is very good. It’s significantly below estimates despite the fact that industrial production, economic activity is recovering,» said Pelin Yenigun, economist at Global Securities in Istanbul. She said currency depreciation continued to feed through into higher WPI but the link between that and consumer prices was weakening. «The higher WPI presumably reflects the impact of higher oil and energy prices, given concerns over Iraq,» said Ash. Core inflation, defined in Turkey as private sector manufacturing prices, showed a monthly rise of 2 percent, up from 1.6 percent in November and higher than the 1.6 percent forecast in the Reuters poll. Cutting inflation is a key element of the IMF rescue program aimed at overcoming a devastating financial crisis in 2001 and reversing years of chronic high inflation. Turkey has beaten its growth and inflation targets for 2002 as the economy recovered faster than expected. The country is now aiming to cut consumer inflation to 20 percent by the end of 2003, a target that may come under pressure in the event of a US-led war on neighboring Iraq. «The dangers for 2003 are still there,» Yenigun said. «Should oil prices increase or should public prices increase too much because of fiscal concerns, we’ll see acceleration of inflation on the WPI front.» Stick to plan, bank says Turkey’s central bank said yesterday that IMF-backed targets for 2003 inflation and growth could be kept despite any war in Iraq, if the government sticks by the IMF plan. «If the program is followed then… forecasts of 20 percent inflation and 5 percent growth can be achieved despite external shocks such as Iraq,» the bank said in a written statement. It said, however, that any war in Iraq would clearly hurt Turkey’s economy, particularly through the exchange rate and rising oil prices. «The central bank has sufficient instruments to ensure the safe functioning of markets in the face of external shock and prevent excessive volatility in short-term interest rates,» it said, promising to stick by its policies of 2002. The central bank said IMF-set monetary targets would continue to serve as a major plank of the $16-billion lending program in 2003 and warned that government commitment to tight spending and structural reform would be key to the success of the plan. In terms of domestic risks the bank listed «increasing domestic demand, not breaking the habit of pricing indexed to the past, delays in reforms and inflationist expectations.» The IMF reform pact, introduced to guide recovery from a 2001 financial crisis, aims to reduce chronic high inflation in Turkey and make a huge domestic debt load more manageable. Turkey is growing faster than the loan deal had originally foreseen and has brought inflation lower than planned. Interest rates on domestic debt, crucial to the success of the program are also lower than forecast. Growth in 2002 is set to reach more than 6 percent compared to an original target of 3 percent, with much of the rise based on exports after a deep 2001 recession. The bank said it expected domestic demand and investment to pick up in 2003. «Five percent growth in 2003 is expected to come from increase in spending on investment and consumption as well as increasing exports,» the bank said. The new Turkish government is in talks with the IMF over the next phase of the plan, linked to payment of a $1.6-billion loan tranche. Fund officials say they expect to wrap up that phase after a visit to Turkey later this month. Pension hikes The government yesterday announced a $1.8 billion pension increase for around 6 million retired people, saying the spending would not break limits under the IMF loan pact but refusing to say how it would be funded. The increases of 75-100 million lira ($45-60) per person on monthly pensions paid to retirees covered by Turkey’s array of state social security systems would cost around 3,000 trillion lira ($1.8 billion) over 2003, Prime Minister Abdullah Gul told reporters. The payments will be made on a rising scale depending on the level of contributions made. He said the additional payments were only planned for 2003. «In making these improvements, we will absolutely not break budget discipline. We will produce a primary surplus and carry out spending reform,» Gul said. Gul declined to say how the spending would be funded. He said that would be made clear later. The measure goes some way to meeting pledges the ruling Justice and Development Party made before November elections to bring a measure of social justice to the IMF plan and improve the situation of Turkey’s poor. The improvements bring the lowest pension up to around $150 a month. There are also around a million Turks over 65 receiving old-age payments which will now amount to $30 a month. Payments to an inefficient and sprawling social security system already make up a major part of Turkey’s state spending and generally end the year over budget.