Turkey’s top banker urges gov’t to stick with IMF prescriptions
ANKARA – Turkish central bank chief Sureyya Serdengecti tried to soothe rattled markets yesterday with a blast of reformist advice to the government, urging it to stick to a key IMF budget target and curb inflation risks. A global emerging market sell-off has helped drive Turkish stocks and the lira to their lowest this year, and bond yields have ballooned. But the slide has been compounded by domestic jitters, including a row over education reform and fears the country might ease up on its primary surplus target. «It is vital that fiscal policy follows the predetermined high primary surplus target,» Serdengecti told the Cabinet in a regular briefing, published on the bank’s website. «The primary surplus is very important because it’s the only variable that can be controlled by economic policymakers in countries like Turkey with a high debt stock that are going through structural transition.» Turkey is aiming for a primary budget surplus of 5 percent of gross national product this year under its $19 billion loan deal with the International Monetary Fund. Prime Minister Recep Tayyip Erdogan unnerved markets last week when he said the government would talk to the IMF about lowering that figure, a statement that most analysts took to refer to targets for future years rather than the current one. A large primary surplus – that is, excluding interest payments – is widely seen as vital for Turkey to continue paying down its large debt stock. «The message is unusually strong,» said Simon Quijano-Evans of Bank Austria-Creditanstalt. «The unnecessary public debate last week on the primary surplus fueled market uncertainty, increased fears on the external imbalances and obviously raised eyebrows at the central bank on the inflation implications.» Serdengecti also said he saw a «serious» risk of inflation coming from the service sector, and that fiscal curbs were needed to cool the impact of a fast rise in consumer credit. Turkey has won IMF praise for dragging inflation down to its lowest levels since the 1970s, and most analysts have said it is on target for its IMF-backed year-end goal of 12 percent. But February data last week raised some concern, with consumer inflation continuing to slow but wholesale prices rising faster than expected. «Price increases in rent, education and hospital services are well above the rise in the consumer price index,» he said. «Rigidity in these sectors is a serious risk for inflation.» Serdengecti blamed banks’ short trading positions for intensifying pressure on the lira, which has slid relentlessly over the past few weeks. The currency was trading around 1,555,000 to the dollar late yesterday in Tuesday value-dated trade, its lowest for 12 months. Analyst Stanislav Gelfer of 4CAST said the governor’s comments looked geared to nudging the government into making market-friendly noises before the central bank intervenes in the currency market to defend the lira.
