ANKARA – The Turkish government has frozen 1.451-billion-lira ($997 million) investment spending planned in the fourth quarter after an International Monetary Fund warning over expenditure, economic officials told Reuters yesterday. The IMF and the central bank are both concerned about the potential for overspending in 2007, when Turkey faces presidential and parliamentary elections. Turkey has exceeded this year’s allocated budget expenditure for civil servants, health, social security transfers and agricultural subsidies. The government decided to cut investment spending to 11 billion lira for 2006, down from 12.5 billion lira in the original budget plan. Between January and September, Turkey had spent 6.04 billion lira of its allotted budget funds for investment expenditure, now leaving 4.96 billion lira for the final quarter. «This amount of funds (1.451 billion lira) will not be spent, given our talks with the IMF,» said an economic official. The IMF, which has a $10 billion loan deal with Turkey, called on Ankara last week to push ahead with reforms and maintain fiscal discipline in 2007 as it tries to get rising inflation back on a downward track. Another economic official said a Finance Ministry decision to freeze some equipment and material spending for state offices was also expected to save money to the tune of 100 million lira. «(This) is encouraging as it suggests that the government is responding to the recent IMF/central bank criticism,» said Timothy Ash of Bear Stearns & Co in London. Denting demand Another analyst said the move might allay concerns about budget spending next year and, given the current account deficit concerns, any moves to dent domestic demand should be welcomed. The markets, focused on other issues, ignored news of the spending freeze. «The markets have other problems today like the elections in the United States and the impact of Tuesday’s Treasury borrowing auctions, in which sales exceeded market forecasts,» said one debt trader. The Turkish central bank, taking a stern line similar to that of the IMF, has said it will raise interest rates further if the government deviates from budget targets and endangers price stability. Durmus Yilmaz, the central bank governor, urged the government on Tuesday to observe budget goals ahead of the elections next year. He said political tension over who will become the next president next May could cause foreign investors to sell Turkish assets and trigger a lira depreciation. Yilmaz has also expressed worries over higher-than-planned pay rises for civil servants. Turkish inflation has flared up this year and the central bank has made a series of interest rate increases, putting a year-end inflation target of 5 percent out of reach and jeopardizing the 2007 target of 4 percent. Last month, Turkey unveiled 2007 budget spending plans that some analysts described as overgenerous. Planned budget spending is put at 204.9 billion lira, down slightly from an earlier target after IMF criticism but still well above an estimated 174 billion lira in 2006.