ECONOMY

Turkey delays key reforms

ANKARA (Reuters) – Turkey’s Parliament is unlikely to approve for at least 10 days a belated reform of the social security system, tied to loans under a $16 billion International Monetary Fund (IMF) pact, officials indicated yesterday. Turkey had pledged to pass the law, raising efficiency in its indebted social security system, by the end of April. Approval of a latest $500 million IMF loan tranche is linked to the move. An International Monetary Fund team is due in Ankara on July 9 amid an extended fifth review of Turkey’s economic program, designed to repair an economy recovering from its worst recession since World War II. Sait Acba, the head of a planning and budget commission considering the social security reform, told reporters a lower commission would now be tasked with scrutinizing articles of the law, work he said he wanted completed in seven to 10 days. Turkey has said it can fulfill by the end of July pledges it made for the review, due to have ended in early June. Foot-dragging on economic reform and a 2003 budget held up a previous review of the IMF pact for some six months. The social security law would then wind its way back through the planning and budget commission before arriving in Parliament’s main assembly for discussion and voting. Analysts worry any fresh tensions with the IMF could weaken the lira currency and raise yields on Turkey’s massive domestic debt load, swollen by a recent bail-out of crisis-hit banks. On top of that, the government has raised its pay offer to public workers for 2003 amid wage talks that could decide whether or not Ankara can stick to targets under its IMF-backed national budget. Union officials said yesterday Ankara had offered some 500,000 workers a pay hike of 4 percent for the first half of 2003 and 7 percent for the second. Turkey’s $16 billion IMF pact foresees a cost-cutting 2003 budget and fresh revenue-raising measures amid efforts to meet a headline 6.5 percent primary budget surplus target for 2003. Turkey has vowed that it will meet the target, which excludes interest payments on the country’s massive debts. Turkish workers’ union Turk-Is welcomed yesterday the government’s new pay offer, made on Tuesday, but said it was insufficient. Neither Turk-Is nor the government has officially revealed the government’s latest offer amid ongoing negotiations. Turkey’s central bank has said adherence to spending targets under the IMF pact is key to meeting a 20 percent year-on-year consumer price inflation (CPI) target for 2003 from some 30 percent year-on-year in May. Turkish Finance Minister Kemal Unakitan said yesterday Ankara would not need to take extra spending measures to meet the 6.5 percent primary budget surplus target this year. An IMF team is expected to press Turkey hard to take further steps to raise revenue or slash spending during its next visit to Ankara. The ruling Justice and Development Party (AK) would not free up some 4,000 trillion lira ($2.85 billion) in budget spending blocked earlier this year, Unakitan told reporters. «There is no need for extra measures in the budget…the economic indicators are extremely good,» Unakitan said. The primary surplus target is used by analysts as a key indicator of whether Turkey can pay down a massive domestic debt load swollen by a financial crisis in 2001. Turkey’s financial plight has led it to refuse to adhere to an agreement with Russia to import natural gas through a $3 billion pipeline built for the purpose across the Black Sea. Turkey halted gas imports through the link in March on grounds of weak demand amid its economic recession and high gas prices, which are cross-indexed with international oil prices. Yesterday, Russia’s gas giant Gazprom announced it had offered to cut gas prices and supply volumes for Turkey for the next five years to avoid taking the country to arbitration. The world’s largest gas producer, which supplies Europe with a fourth of its gas needs, said in a statement the firm had also offered to reinvest profits from gas sales via its Black Sea Blue Stream pipeline into Turkish gas infrastructure. Turkey is also annually getting around 12 billion cubic meters of gas via an inland pipeline, running through the territories of Bulgaria and Romania. Gazprom has said Turkey should resume imports by July 1, as stated in the contract or face financial penalties. Under the deal, Turkey must import at least 0.8 bcm via the Blue Stream in 2003. The pipeline has a capacity of 16 bcm of gas per year.