Interest rate strife grows as minister rakes up past

ISTANBUL - Hürriyet Daily News

Former Central Bank Gov Durmuş Yılmaz (L) shakes hands with his successor Erdem Başçı. The government stands behind Başçı’s ‘unconventional’ interest rate policy. DAILY NEWS photo, Selahattin SÖNMEZ

The Turkish Economy Minister has openly criticized the policies of the former governor of Turkey’s Central Bank on March 23, saying that if some crucial mistakes had not been made by the governor, the country’s current account deficit would not have reached $77.8 billion last year.

“I always support when the policies of the Central Bank are right, but when they’re wrong I also say so,” said Zafer Çağlayan, speaking at the Netherlands-Turkey Business Forum in Istanbul. “I wish the bank had not done wrong regarding previous interest rate policies,” he said.

“We would not have a wide current account gap if that were the case. Everyone holds the Turkish government responsible for the high current account deficit, but the former governor who made mistakes is awarded by some institutions,” he added.

Turkey’s 2011 current account deficit increased by a substantial 65.3 percent from 2010, reaching $77.8 billion, an approximately $30.5 billion increase from $46.6 billion last year.

Speaking at the 1st Uludağ Economy Summit on March 17, Durmuş Yılmaz, the former Central Bank Governor and now chief economy advisor to Turkey’s President Abdullah Gül, questioned the “zero interest rate target” of the government.

“We should reconsider the role of the zero interest target in our bid to increase the domestic saving ratio,” Yılmaz said, noting that Turkey’s domestic saving ratio still remains low, at 12 percent of gross domestic product. Turkey’s economy administrators should reevaluate the low interest rate policy, he said.

“The current account deficit is not a problem of today, but a result of the accumulated mistakes of the last 60 years,” Yılmaz added, noting that the recent moves of the economy administration “promised” to curb the deficit. Prime Minister Recep Tayyip Erdoğan had announced his “zero interest rate target” last year in April.

Calling on Dutch investors

Çağlayan also invited Dutch investors to benefit from the new incentives package, which has not yet been revealed. “Don’t be late [for investing in Turkey] and taking action,” Çağlayan said. He added that Turkey could well replace the Netherlands in the list of the world’s top economies by the end of this year.

“Turkey will take the Netherlands’ 16th place in the list of world economies by the end of 2012, if our economic performance continues to post well,” he said.

Çağlayan said that Turkey will need to invest nearly $130 billion into energy facilities within the next ten years. The minister also said that Turkey is currently working on constructing a port to be ranked among the top ten container ports of the world in size in Turkey’s southern province of Mersin by the Eastern Mediterranean.

Noting that Netherlands currently ranks as the biggest foreign direct investor of Turkey with a total volume of $16 billion, Çağlayan said that Turkish firms also had nearly $3.1 billion worth of investment in Netherlands.