Central Bank governor hails incentive scheme

ISTANBUL- Hürriyet Daily News

Central Bank Gov Erdem Başçı (2nd L) speaks at an event, which Olivier Blanchar (L) of the IMF, Hiroshi Nakoso (2nd R) of the Bank of Japan and Carlos Arajua of the Brazillian central bank attend. AA photo

The Central Bank Governor Erdem Başçı has welcomed the incentive system announced last week, which puts complementary financial policies into action over the weekend through payroll and corporate tax cuts, diversifying region by region.

“We welcome the latest package of measures and think that it sets monetary policy at ease and reinforces it,” the Anatolia news agency quoted Erdem Başçı as saying at a conference on policy responses to commodity price movements on April 7.

The package does so in two ways, according to Başçı. Firstly, it eases the output gap and inflationary pressures, increasing the potential production level as a supply-side expansionary package. Secondly, it takes some of the burden away from monetary policy.

“This is a package of measures precisely to maintain profit margins at a stable level. On the one hand the costs of firms rise due to energy prices, but on the other hand firms receive compensatory support via tax [cuts],” he said, adding that fluctuations in commodity prices, and particularly energy imports, still pose risks for the economy.

Dependency on energy imports has made the current accounts balance more sensitive to commodity price fluctuations, he said. Temporary tax cuts on labor and capital, rather than sales, as part of the incentive system are therefore considered, “as we could face a supply-side or a cost-side shock.”

Provincial Imbalances
The announced system is the most comprehensive incentive system to date, the Union of Chamber and Commodity Exchanges (TOBB) head Rifat Hisarcıklıoğlu said, daily Hürriyet reported yesterday.

According to Hisarcıklıoğlu, there five very important factors: “It is very important to divide provinces into six regions. Thus, imbalances between provinces can be minimized. The [national] economy administration broke a new ground by enabling provinces to change regions. It is a very important step to grant large incentives to the strategic sectors regardless of places of investments.” He added that traditional industries had not been left out, despite the support for high technology industries in an attempt to the decrease Turkey’s current account deficit.

“We especially support the incentives for labor-intensive industries, as the unemployment problem in the whole world is deepening fast,” he said.

Comprehensive support on interest rates is one of the main factors propping up private sector investment, as high funding costs are one of the biggest problems faced by firms. Organized industry zones will turn each into a Silicon Valley, with incentives carved out for these zones and investment deductions, Hisarcıklıoğlu also said.

It is expected that the coverage rate of the needs of the Turkish Armed Forces will rise to 60-70 percent, from the current rate of 52 percent, Defense Industry Undersecretary Bilal Aktaş said yesterday, without specifying a period.

“There are clustering activities in Eskişehir, Istanbul, Ankara [in the defense industry] … Incentives will support such investments,” he said, according to the Anatolia.

Information center
Meanwhile, the Economy Ministry has founded an “Incentive Information Center” to promote the new system, Minister Zafer Çağlayan said yesterday in a written statement. Çağlayan said that foreign investors may send in questions to incentives@economy.gov.tr, or call +90 312 444 43 63.