OECD says Turkey must stick to ‘virtuous cycle’

ISTANBUL (Reuters) – Turkey’s government must adhere to IMF-backed economic reforms to maintain a recent «virtuous cycle» that includes lower interest rates and investor confidence, the OECD said yesterday. Turkey’s economy is expected to grow by 5 percent this year under a $16 billion recovery pact with the International Monetary Fund, signed after a 2001 financial crisis unleashed the country’s worst recession since World War II. The OECD said investor sentiment has rebounded after concerns earlier in the year when the government was slow to follow through on some of the pledges it had made to the IMF. «Sticking rigorously to the structural reforms set out in the International Monetary Fund standby arrangement and in the convergence plan with the European Union should help preserve growth momentum,» the Organization for Economic Cooperation and Development said in its half-yearly report. Interest rates on Turkey’s hefty domestic debt stock of $124 billion have fallen from levels above 70 percent ahead of the war in neighbouring Iraq to below 30 percent in November amid growing confidence over the economic recovery. «A virtuous cycle of fiscal stabilization, interest rate declines and increasing confidence should help maintain GDP growth on a strong path,» the OECD said. Gross domestic product grew by 7.8 percent last year. Exports and tourism, which has rebounded after the Iraq war, are two of the main drivers behind growth, the OECD said. But employment creation remains weak amid rising industrial productivity and job cuts in the public sector, and real wages continue to decline, the OECD said. Efforts to advance a faltering privatization program will help ensure growth and bring in investment, the report said. Earlier this month the government canceled a key tender for state-owned cigarette manufacturer Tekel after Japan Tobacco’s bid of $1.15 billion was far below analysts’ expectations of $3 billion.