ECONOMY

Turkish markets jittery

ISTANBUL – Turkish markets sank yesterday as the government’s failure to fully explain how it will fund increased state pensions added to deep worries over the impact of a war in Iraq on Turkey’s $16 billion IMF loan deal. The main share index fell 5.84 percent to 9,752.86 points, while the Turkish lira slid to 1,684,000 to the dollar from Monday’s 1,661,000. The central bank intervened in currency markets on December 24 when the currency fell to around 1,700,000. Average yields on closely watched December 3, 2003 debt rose to 57.98 percent from Monday’s 56.56 percent. Traders said that while the prospect of war in neighboring Iraq remained a worry, attention was increasingly focused on how the Justice and Development Party government would pay for promised increased retirement pensions. «The main thing that is dragging the market down is worry over whether the pension increases will create a problem with the IMF,» said Mert Yilmaz of Oyak Investment. As well as the possible effect on macroeconomic targets, higher expenditure will not be welcomed by the markets amid Turkey’s efforts to pay down a massive domestic debt load, the cost of which has risen amid worries over a possible attack on Iraq. Turkey yesterday issued 161-day and 273-day debt at yields of 57.1 percent and 59.61 percent respectively, above yields of 51 percent in a previous auction of December 3, 2003 debt held on December 17. Prime Minister Abdullah Gul announced the rises in retirement pay last week, but did not say how they would be funded from a budget that is tightly monitored and constrained by the IMF deal. A Reuters poll of 10 bankers and analysts forecast yields of 56.5 percent for the 161-day debt and 58 percent for the 273-day papers. The total sale of 1,493 trillion lira ($887 million) was well below the 2,500-3,000 trillion lira predicted in the poll. «Terrible… The yields turned out to be higher than expected by the market despite the low sale amount,» said Volkan Kurt at ABN Amro. The treasury faces a total of 4,344 trillion lira in domestic debt payments today. Finance Minister Kemal Unakitan told reporters on Monday the government would reduce subsidies for workers on pharmaceuticals by 1,000 trillion lira (some $600 million) to meet the 3,000-trillion-lira pension increase.