DUBAI – Turkish Economy Minister Ali Babacan said yesterday the government expected the recent rally in the lira currency to contribute to a year-end current account deficit of 3 percent of gross national product (GNP). The lira has climbed to levels around 1,355,000 from record lows of some 1,750,000 in March when investors feared the war in Iraq would undermine Turkey’s economic recovery from a punishing 2001 recession. «We expect our current account balance to be at a deficit of a little more than 3 percent of GNP by the end of the year,» Babacan told Reuters in an interview on the sidelines of the the International Monetary Fund and World Bank meetings in Dubai. Babacan said the lira’s appreciation, as well as the economic impact of the war in neighboring Iraq, had contributed to the deficit, which swelled to $4 billion in the first half of the year against a year-end target of $7.4 billion. The Iraqi conflict frightened away tourists earlier in the year, undermining a main source of revenue in Muslim Turkey. Rising oil prices also helped widen the current account deficit in Turkey, which has to import almost all of its oil. «This current account balance deficit that is projected to occur by the end of the year is OK if we consider the record level of our central bank reserves and ease of financing,» Babacan said. «At this point we are not worried.» Babacan said the outlook for 2004 was better. «Next year we are not expecting an external shock like that in tourism and oil prices, so next year we are more optimistic.» Turks are converting more of their dollars to lira as they gain confidence in the economy and Turkey has also had some net currency inflows this year – two factors putting upward pressure on the lira, Babacan said. «It is actually about a reversal of dollarization, making people trust in the Turkish lira again. That definitely makes us happy, it is a sign of confidence.» However, he added the strength of the lira was hitting some exporters with high costs and would feed into the current account deficit this year. Official data released yesterday showed Turkish exports totaled $25.513 billion in the year to July, while imports reached $36.607 billion, producing a trade deficit of $11.094 billion, a 40.9 percent leap from the same period last year. Turkey’s central bank has been buying dollars through daily auctions and has also intervened five times this year in the foreign exchange market to curb the lira’s gains. Babacan said these actions have led to a record level of Turkish foreign currency reserves, which reached $31.385 billion on September 12. Babacan also said the year-end IMF-backed target for 20 percent consumer price inflation would be comfortably met. An IMF team is to begin its sixth review of Turkey’s economic performance under a $16 billion dollar loan pact this week. Talks are expected to conclude by mid-October, he said.