OECD sees Turkey 2008 growth over 6 percent but urges reform
ISTANBUL – Turkey will grow more than 6 percent in 2008, but must consolidate central bank independence, boost transparency and loosen labor markets to improve its resistance to external shocks, the Organization for Economic Cooperation and Development (OECD) said yesterday. In its twice-yearly economic outlook report, the OECD also forecast Turkey’s gross domestic product would grow nearly 5.5 percent in 2007, in line with a government forecast. In May and June, Turkey suffered a mass exodus of foreign capital from its markets, which knocked as much as 25 percent off the lira’s value and prompted the central bank to raise benchmark borrowing rates 425 basis points. «Monetary policy credibility needs to be bolstered in particular by consolidating the independence of the central bank,» the OECD said, adding that monetary policy was likely to stay tight as the bank tries to restore the credibility of its 2007 and 2008 inflation targets. Inflation is running at almost double this year’s 5 percent target. Before the May-June sell-off, markets suffered from a long period of uncertainty over who would lead the central bank as the government’s candidate was vetoed by the president. The OECD also said government fiscal accounts should be published according to international standards to boost transparency, and multi-year spending targets should be used. «A number of institutional and structural weaknesses remain, constituting sources of vulnerability in case of any downturn in international financial markets,» the report said. It also called for more flexible labor markets, saying Turkey’s regulations were among the most rigid in the OECD. Turkey’s gaping current account deficit is considered the weak spot of a fast-growing economy and the OECD said that while it was expected to hit a record high above 8 percent of gross domestic product this year, it would then decline slightly. «(The deficit) is expected to be financed rather easily with private long-term debt and foreign direct investment,» it said. The government expects foreign direct investment (FDI) to top $20 billion next year, with big ticket privatizations still due to be carried out.