Turkey’s healthy growth

ANKARA – Turkey’s gross national product (GNP), helped by renewed domestic confidence, is set to grow by 5.2 percent this year versus an official target of 5 percent, Deputy Prime Minister Abdullatif Sener told Reuters. «Gross domestic product is forecast to be 4.1 percent in the fourth quarter of 2005, and gross national product is forecast to rise 3.8 percent in the fourth quarter,» he said in a weekend interview. «According to this, GDP growth in 2005 is forecast at 5.2 percent and GNP growth again is forecast at 5.2 percent.» The new figures were slightly lower than that of Finance Minister Kemal Unakitan, who forecast last week GNP growth at 6 percent versus nearly 10 percent in 2004. Since the twin financial and political crises in 2000 and 2001, Turkey has recovered dramatically, partly with the help of an International Monetary Fund (IMF) rescue program. Economic growth, foreign direct investment and currency stability are back. Inflation has been cut to single digits after more than three decades of double- and triple-digit figures. Sener summarized the government’s economic policy as «economic stability, having a sustainable high growth trend, lowering inflation and never giving up fiscal discipline.» Thanks to a program based on establishing stability and confidence, strong foreign capital inflow continued and was expected to continue next year, he said. The priorities of the government of the Justice and Development Party (AKP), which swept to power in 2002 on a wave of voter dissatisfaction with established political parties, was to trim the current account deficit and cut unemployment. Turkey’s current account deficit reached $17.1 billion (14.4 billion euros) in the first 10 months of this year, and was expected to rise to $21.3 billion (18 billion euros) by the year’s end. The current account deficit, fueled by an import boom, is funded by strong capital inflows thanks to economic reforms. EU accession talks and major firms’ privatization have shielded Turkish markets from the impact of high oil prices and global investment shifts, analysts say. «There is no problem in the financing of the deficit,» Sener said, adding the government would stick to its fiscal discipline and economic program, for which it has won praise. Sener said a strong Turkish lira currency was influencing the size of the deficit but stressed that the government would not call on the central bank to intervene. The government has come under pressure from exporters as a stronger lira versus the dollar has eroded some competitiveness. Sener said the bank had room to maneuver under the floating exchange rate regime – introduced in 2001. «The central bank can increase the (exchange) rate if it wants. The central bank can raise the rate in line with the floating exchange rate,» he said. «But we give so much importance to the policies we’re implementing and the international market confidence. Therefore, we give importance to the central bank’s independence,» he said. Turkey had no plans to follow Brazil and Argentina and pay its $13.64 billion (11.5-billion-euro) IMF debt earlier than scheduled, he said. «We can pay the money but then it would mean an end to the program with the IMF. We’re carrying out the program we started with the IMF. As we finish the reviews at certain times while the program continues, the IMF gives a certain amount of money. It would harm the program to say, ‘I don’t want that money,’» Sener said. IMF funds played a key role in Turkey’s recovery from 2001’s severe financial crisis, which crushed thousands of businesses and caused the biggest contraction in the economy since World War Two, making Ankara the biggest client of the fund. Fast growth and IMF-backed reform policies helped reshape an economy crippled by corruption, mismanagement and political instability and made the economy an IMF success story. General elections are not due until 2007 and the fund’s support is considered crucial for investor confidence and keeping foreign funds flow in, analysts say. Sener rejected accusations that the government of the AKP, which has roots in political Islam, was hit by reform fatigue. «We’ve sent drafts about the social security reforms to the Parliament. We’re making regulations on tax rates,» he said, referring to key IMF-sought legislation. «The privatization of public banks and the details of their timetable will be announced in 2006.»