Fortified by an International Monetary Fund decision to provide $16.2 billion in stand-by credit, Turkish Economics Minister Kemal Dervis declared recently that Ankara had cleared an important fiscal threshold. Dervis asserted that Turkey's banking sector had been reformed, its exchange rate had stabilized, and its citizens remained intent on seeking European Union membership. He added that the country's chief economic reform challenge at present is harmonizing public expectations with plans to trim and freeze inflation growth.
Dervis tempered his upbeat comments by noting that the country still has to check inflation of the Turkish lira, a currency that has become so inflated that a taxi ride routinely cost millions. "We cannot continue to live with very high inflation," Dervis said at a February 4 event in New York, jointly sponsored by the Eurasia Group and the American-Turkish Society. Inflation in Turkey has run as high as 68.5 percent annually in recent months.
Noting that Turkey has a positive current account - thanks in part to a 14 percent gain in exports in 2001 - Dervis told guests the government intends to move aggressively on inflation this spring. "In the coming four months, we have a golden opportunity to lower inflation and inflationary expectations," he said, proclaiming an inflation rate of 35 percent "perfectly achievable and consistent with three or four percent growth." In addition, Dervis said Turkey would continue efforts to cut taxes and reduce government spending. With the shock following the September 11 attacks dissipating, Dervis also urged foreign direct investment in Turkey.
Addressing inflation expectations will be a somewhat novel task for Dervis' reform team, who allowed the lira to float against other currencies and moved to privatize industries from tobacco to aviation in 2001. Sureyya Serdengecti, governor of Turkey's Central Bank, acknowledged as much in comments at the February 4 meeting. He argued that as the lira's exchange rate stabilizes, the bank should "be able to get the expectations of the public to converge with our targets, which will [itself] help stabilize" the currency. Among other things, Serdengecti said the bank would develop a policy analysis system for inflation targeting and would "aim to find the clearest way to share with the public exactly where the Central Bank is headed." He also promised to stop acting as a "blind broker" in currency trades, leaving those deals and their risks to private-sector players.
The Turkish government has sought to project an image of being a reliable partner of the West in a region prone to volatility. It has also worked to position itself as an economic bridgehead connecting Western markets with natural resources in the Caspian Basin and Central Asia. At the same time, it has sought to expand its political and economic profile in those two regions of the former Soviet Union.
Despite the IMF boost, Turkey remains an economic work in progress. One of its signature development projects, the Baku-Tbilisi-Ceyhan pipeline, yet to move beyond the planning stage, even though several multinational energy companies are involved in the endeavor. At the February 4 forum, Undersecretary of the Treasury Faik Oztrak downplayed expectations about the project. Its benefits would be indirect in 2002 and 2003, he said, provided the international investment community sees it as a good opportunity to invest in a growing region.
In a January 18 letter to the IMF, Dervis and Serdengecti said Turkey would make efforts to explain Turkey's policy more clearly to "domestic and international investorCommunities."
Alec Appelbaum is a contributing editor to EurasiaNet.