ECONOMY

Turkey’s welfare system deficit will top target, minister admits

ANKARA – Labor Minister Yasar Okuyan said yesterday that crisis-hit Turkey’s 2002 social security deficit, already a major drain on state resources, may top 9,000 trillion lira ($6.3 billion) from a planned 7,900 trillion lira. Such extra spending could mean Turkey deviates from key budget targets under its $16 billion IMF pact unless it squeezes more revenue from an economy suffering its worst recession since 1945, or cuts spending elsewhere. «From the beginning I was estimating a higher deficit than projected in the budget; now I think it could exceed 9,000 trillion lira (this year),» Okuyan told Reuters in an interview. In an April letter of intent to the IMF, Turkey had pledged to offset lower-than-expected fuel consumption tax revenues and the cost of a job creation plan via savings in social security. Social security deficits are historically a massive burden for Turkey’s cash-strapped treasury, which was often forced to finance that expenditure through expensive local borrowing. But Turkey must run a tight budget in 2002 in order to service a massive debt load swollen by a rescue of its banking sector after last year’s economic crisis. The social security system has already produced a deficit of 3,707 trillion lira in the first four months of this year, according to Finance Ministry data. Turkey in February announced it had overrun a key IMF-backed budget deficit target in 2001, saying it would have met the target save for payments on social security and debt. Under a previous IMF pact, the government in 1999 passed a law to gradually raise the retirement age to 58 for women and 60 for men as part of efforts to tackle a gaping hole in its social security system. But the system will not be able to break even before 2050, Okuyan said. Okuyan said recently introduced private pension schemes would eventually contribute to cutting the jobless rate, measured officially at around 10.6 percent. The reform is also set to help reduce the burden on the social security system. He said he expected firms to collect at least $10 billion by 2006 in private pension schemes and that tax advantages would be provided to lure in more participants. «For long-term benefits, short-term gains should be sacrificed and pension payments should be exempted from tax,» he added. The stock of arrears of Turkey’s social security institutions totaled 120 trillion lira in September 2001, according to Turkey’s letter of intent to the IMF. In Istanbul yesterday, the lira, stocks and bonds held firm amid news that Prime Minister Bulent Ecevit’s health was improving and as a meeting of coalition leaders convened at a hospital where he is being treated. Investors expect the meeting, held amid concerns about early elections and an IMF visit to check implementation of the loan pact, to produce positive statements on the government’s commitment to reforms. The lira ended at best bids of around 1,418,000 to the dollar from Monday’s 1,431,000 while the most active April 9, 2003 bond rose from 61.28 to 60.22 percent. The main stock index closed 1.24 percent up at 10,895.70 points. «We need to see that the coalition is operational even if Ecevit is in his sickbed,» said Hakan Avci at Global Securities in Istanbul.