Ankara – Turkey’s central bank chief yesterday urged the government to tighten state finances and increase efficiency or risk losing a decades-long battle with chronic high inflation. «The softening in state finances must definitely be corrected,» Sureyya Serdengecti said in comments that could set him at odds with the new Justice and Development Party (AK) government. Turkish markets, already wary of the AK’s ability to enforce strict budgetary standards imposed by the International Monetary Fund (IMF) under a $16 billion loan pact, have been further shaken by the release on Monday of surprisingly bad official data for inflation in January. Consumer prices (CPI) rose 2.6 percent over the month, marginally less than expected, but wholesale prices (WPI) soared a monthly 5.6 percent, way above predictions. Yearly WPI in Turkey is now 32.6 percent, while CPI stands at 26.4 percent against a target of 20 percent for 2003. Deputy Prime Minister Abdullatif Sener brushed off the data and said he was confident of meeting the year-end target. «As you know, CPI has fallen to 26 percent, the lowest CPI since 1983. Our target for 2003 is 20 percent. So, being at 26 percent in the first month of the year is hopeful for the year-end target,» he told reporters at a conference on inflation. But Serdengecti told the same conference later in the day that government price rises at state-run enterprises had been a major factor in the January spike in inflation. The January data showed manufacturing industry prices rising 3.6 percent in the private sector in January compared to 8.5 percent in the state sector. On an annual basis, the private sector rise was 29.5 percent and 43.6 percent for the state. Price rises The AK has increased prices on many things, notably alcohol and tobacco, in a bid to draw in the revenue needed to meet IMF budgetary targets. Rises in petrol prices and weakness of the local currency also had an impact on prices. Serdengecti warned the government that it could not simply raise prices at rates above the inflation target in order to compensate for its plans to increase spending on pensions. «Establishing pricing and tax policy on the basis of public finance has a risk for inflation. We have already seen some of this in January prices,» Serdengecti said. Instead, the central bank head urged the government to concentrate on more painful steps, such as increasing efficiency at state enterprises. «Income policy should not be overweighed by factors other than productivity,» he said, urging forceful implementation of structural reforms also demanded by the IMF pact.