Elections will delay inflation targeting, says top Turk banker

WASHINGTON – Turkish elections in November are likely to delay the country’s move to a system of inflation targeting this year, a step it has promised the International Monetary Fund (IMF), the head of the central bank said late on Monday. Officials also said they were confident the next tranche of a $16-billion IMF loan would be paid after the elections and the country would not need to borrow anything additional, unless a large international upset such as a war in Iraq occurred. Turkey and the IMF plan to introduce a system under which the treasury and central bank tailor monetary policy to meet inflation targets. This would replace the crawling currency peg that gave way during the economic crisis in early 2001. Since then monetary policy has been in a state of transition. Central Bank Governor Sureyya Serdengecti said the administration would be ready for the move as promised by the end of this year, but the upheaval of November 3 elections and the arrival of a new government would hold up its implementation. «We will have completed our preparations by the end of this year, but central bank preparations are not enough on their own,» he told Reuters during a visit to the IMF in Washington. «Certain conditions need to be in place. For instance, we need a clear picture of the public finances for next year. The 2003 budget needs to be drawn up and be approved. Additionally we are going through a political process so it is impossible to say anything right now,» he said. Future borrowing? Treasury Undersecretary Faik Oztrak repeated Turkish expectations that a $1.6-billion tranche of a $16-billion IMF loan deal would be released after the elections. Turkish officials are presently discussing the deal with the IMF. «If we proceed under a normal timetable, it is understood that completion of this review will remain until after the election,» Oztrak said. Following the payment of the $1.6-billion loan, Turkey will have only $1.1 billion still to be paid out of its deal, drawn up to guide the country out of a post-crisis recession and help handle a huge domestic debt burden. The original IMF deal sees the remaining $1.1 billion being paid out in four equal doses over 2003. Oztrak said that unless there is a major shock to Turkey’s economy, or ability to borrow abroad, it will not need additional cash from bodies such as the IMF or World Bank. «Unless there is a serious upset in the international situation or we hit some external shock, we do not see any need for resources. In other words, we can easily carry out the borrowing we foresee abroad,» Oztrak said. The looming prospect of a US-led military attack on Turkey’s neighbor Iraq, however, threatens to capsize many calculations, central bank head Serdengecti said. Turkey fears turmoil in neighboring Iraq would deter foreign investment, scare away tourists and limit Turkey’s access to international capital markets. Serdengecti said the issue had been widely discussed with IMF officials but uncertainty made planning hard. «They (the IMF) have asked a lot about Iraq,» he said. «It is impossible to say when the operation will start or how long it will last. So it is impossible to examine the impact on the economy in more detail,» he said.