Turk PM would like to see lower taxes, rates

ISTANBUL – Turkish Prime Minister Recep Tayyip Erdogan said yesterday he would like interest rates to be lower. Turkey, which is battling double-digit inflation, has some of the highest real interest rates in emerging markets, with a central bank benchmark borrowing rate of 17.50 percent. That hurts investment, growth and employment while the government faces a general election on July 22 – called early amid a political crisis. «I favor lower interest rates. We would like them to reach the 13 to 13.5 percent level again soon,» he told a business conference. Rates were at that level in early 2006, before an inflation shock and slide in the value of the lira prompted the central bank to crank rates higher. The bank is still favoring a hawkish stance. Higher rates have crimped growth and investment: Gross national product growth fell to 6.0 percent last year, after a slowdown in the second half, from 7.6 percent the year before. Unemployment meanwhile remains high, last reported at 11.4 percent for the first three months of the year, measured on a moving average. High interest rates are also encouraging portfolio investors to hold the lira, increasing its value and threatening the competitiveness of Turkish exports. Signaling new tax cuts Erdogan has signaled value-added tax cuts in the food and tourism sectors in a move likely to irk the International Monetary Fund, businessmen said yesterday, after his meeting with the country’s top business group TUSIAD on his party’s economic policies ahead of the elections. «He said the government would announce broad-based tax cuts in food and tourism from 18 percent to 8 percent in the next days,» a businessman from TUSIAD, who declined to be named, told Reuters after the meeting, which was closed to the media. Businessmen said the prime minister told them the finance ministry was working on the tax cut plan. Turkey pledged not to make sectoral tax cuts in its final letter of intent to the IMF, which has a loan deal with Turkey and objected to cutting value-added tax in textiles in the past. The IMF approved a $1.1 billion loan disbursement under the country’s standby agreement with the global lender, which urged Ankara to maintain tight monetary policy and press ahead with structural reforms. The acting head of the Revenues Administration, Osman Arioglu, confirmed that the the finance ministry was working on the tax cut plans. «We do such work all the time. It is the job of the government to decide on tax cuts. If this decision is made, it will be implemented,» Arioglu told Reuters. Tourism operators have long pressed the government for tax cuts, saying they are way higher than rival Mediterranean tourism destinations Spain and Greece.