Social security snag
ANKARA – (Reuters) Investors in Turkish assets are worried that a delay in politically sensitive social security reform could damage Turkey’s ties with the International Monetary Fund and hit its budget performance in 2006. Passing two bills under the social security reform package is a condition for the IMF to release its next loan tranche as part of a $10 billion standby accord with Turkey. The bills, already delayed from last year and facing stiff popular and political opposition, will not now be approved on schedule, the employment minister said without elaborating last week. The IMF hopes the reforms will rein in the ballooning social security deficit, which is expected to exceed an official target of 4.5 percent to reach 5 percent of gross national product (GNP) in 2005. «Every delay deepens our difficulty. The social security deficit is one of the most costly items in the budget,» said Oyakbank economist Sengul Sonek. The delay could raise doubts over the government’s sincerity on structural reforms, she said, adding that these were crucial for maintaining Turkey’s strong budget performance. Previous performance reviews of the $10 billion standby accord were delayed last year due to holdups in structural reforms, including social security. Unlike most European economies that face pension system crises due to aging populations, Turkey has a growing young population and should normally be running a pension surplus rather than a deficit. But mismanagement and widespread early retirement have created a deficit in the last 10 years equal to Turkey’s entire national product in 2003, Labor Ministry data showed. The data showed that 62 percent of Turkish workers retired before the standard retirement age of 58-60. «Within the last 10 years, the social security system itself has become one of the main sources of instability in the Turkish economy,» the ministry said in a report. But the reform plans have sparked popular protests from labor groups fearing that the IMF-backed legislation will hurt workers, making it harder for the government to move ahead. Robust economic growth and falling inflation have helped Ankara persuade the IMF to release loans during the previous reviews despite the reform delays, but analysts say the IMF’s flexibility has its limits. «I believe that the IMF will start complaining after this point,» said Raymond James analyst Hakan Avci. Turkey was meant to pass two social security reform bills before end-January and Feb. 15 to receive its next IMF tranche. «We do not think it will affect the program for now, but the IMF will probably threaten the Turkish government and continue to press hard for reform,» said Lars Christensen, head of new Europe research at Danske Bank in Copenhagen. The deficit was 2.5 percent of GNP in 2000 and 3.5 percent in 2004. Turkey hopes to cap the deficit at its 2004 level of 4.5 percent during the entire three-year economic program with the IMF. The IMF and the World Bank have warned that the pension deficit could rise dramatically to 7 percent of gross domestic product in a few years if Ankara fails to implement the reforms. The reforms introduce universal health insurance, but also aim to cut costs through savings from pharmaceutical procurement, enhanced medical referral systems and tighter budgetary constraints on hospitals.
