Turkey to press on with plan for regional investment incentives

BURSA, Turkey – Turkey will press on with a controversial plan for financial incentives to encourage investment in poorer parts of the country despite opposition from the IMF, Economy Minister Ali Babacan said yesterday. The plan was heavily criticized last week by the International Monetary Fund, which said the move could block a new $10 billion standby deal agreed in December to replace Turkey’s expiring IMF agreement. «The number of provinces (which will receive government incentives) is rising to 49 from 36. This is a final decision, and there is no return from this,» Babacan told local businessmen. The IMF’s senior representative in Ankara, Hugh Bredenkamp, urged the government last week to revise plans to boost jobs in poorer regions through incentives because they could damage state finances. Under the plan, the government backs investment in poor provinces through incentives in areas such as tax, social security and energy. However, Babacan said Turkey could afford higher spending for expanded incentives, adding that the government was currently working on funding plans. Economic officials told Reuters last week that a special consumption tax and cuts in some investment would provide the cash to broaden the incentive system. To get IMF approval for the new $10 billion deal, Turkey’s Parliament must pass tax administration reforms. The government also has to submit banking and social security reforms to Parliament.

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