Turkey cutting surplus target

ANKARA (Reuters) – Turkey said yesterday it was cutting its total primary surplus target for 2008 to 5.5 percent of gross national product from 6.5 percent in previous years, but denied it was taking risks with fiscal policy. The primary surplus, which excludes interest payments, is seen as a key indicator of Turkey’s state finances. The 2008 draft budget, unveiled by Finance Minister Kemal Unakitan, envisages a primary surplus target of 38.24 billion Turkish lira ($31.63 billion) and a budget deficit of 17.75 billion lira. «It is wrong to say that Turkey has relaxed fiscal discipline and cut its primary surplus to 5.5 percent because its deal with the International Monetary Fund (IMF) is coming to an end,» Unakitan told a news conference. «Turkey will continue with fiscal discipline and structural reforms with or without the IMF because it is in the interests of Turkey.» An IMF funding deal worth $10 billion expires next May. Unakitan said Turkey expects the 2007 primary surplus to come in at 34.11 billion lira and the budget deficit at 14.9 billion lira. «The (old) 6.5 percent target is not a magic figure. What is indispensable is a continuation of fiscal discipline. Turkey now has sustainable growth and confidence. The foreign investment flowing in is the proof of this,» Unakitan added. Foreign investors poured $20.2 billion into Turkey in 2006, up from just 1.14 billion in 2002 when Prime Minister Recep Tayyip Erdogan’s center-right, pro-business Justice and Development Party came to power. Analysts backed Unakitan’s upbeat assessment. «Such a cut (in the primary surplus target) came as no surprise, given the sharp improvement in Turkey’s debt ratios. Gross public sector debt fell from 106 percent to 59 percent and net debt from 89 percent to 41 percent in the last six months,» said Yarkin Cebeci, an economist at JP Morgan. «In our view, such an improvement allows some decline in the primary surplus target.» Cebeci said structural reforms designed to tackle Turkey’s deep-rooted fiscal problems were more important than the primary surplus target. He welcomed Unakitan’s comment that the cabinet would soon send to parliament a major social security reform. The reform, long sought by the IMF but vetoed by former President Ahmet Necdet Sezer, who has now been replaced, is critical to stop Turkey’s spiraling welfare deficit. The government, which won a fresh five-year mandate in July elections, has also signaled it will press ahead with delayed privatizations.