Limiting capital movement suicidal move for economy: Deputy PM

ISTANBUL

Deputy Prime Minister Ali Babacan (R) is seen next to Turkey’s EU Minister and Chief Negotiator Mevlüt Çavuşoğlu as they accompany President Abdullah Gül in his recent visit to Italy. AA photo

The recent rumors that capital movements could be limited by the Turkish government have been categorically denied by Deputy Prime Minister Ali Babacan.

“There is no crisis that needs a crisis package,” Babacan said Feb. 5 in a televised interview. “The rumors of restrictions on capital are totally baseless. Limiting the capital movements will be suicidal for the Turkish economy.”

Babacan said the total market value of publicly-traded companies have dropped $60.25 billion since Dec. 13, 2013, the rates went up but “the net capital outflow from Turkey is very limited.”

The deputy prime minister added that the government had its plans ready for even the worst situations.

“But we must stress what are not included in these plans,” Babacan said. “If you close Turkey to capital movements, we will become a shrinking country with negative growth. It is not possible for a government of 11 years to take a step that will kill the country’s economy, it cannot even think of such thing. Hence, the rumors did not have any major effect on the markets.”

Babacan noted that the markets seem to have welcomed the Central Bank’s decision on interest rates according to the results of the first week.

Interest rate hikes

Central Bank’s Monetary Policy Board (PPK) raised all interest rates on Jan. 29: the overnight lending rate to 12 percent from 7.75 percent, the one-week repo rate to 10 percent from 4.5 percent, and the overnight borrowing rate to 8 percent from 3.5 percent. The bank said it may tighten further if necessary.

“We have always said that the Central Bank has various instruments and will take new steps if needed,” the deputy prime minister said. “There were different views on the situation, but the recent steps taken show that what the economy needs should be done at the right time.”

Babacan added that one of the “don’ts” of the government would be changing the structure or independence of the Central Bank. “If you change the independence of the bank, serious unforeseeable repercussions will follow and the investors will give a serious reply,” he said. “This issue is openly stated in our party program. A different move will be denying the promises we have made.”

Babacan noted that the government has not so far reflected the increase in exchange rates to energy prices since it is not clear how long the fluctuations will last.

“So far, [Petroleum Pipeline Corporation] BOTAŞ has paid the difference in the prices from its own pocket,” Babacan said, adding that such situation is not sustainable for the country’s major natural gas and oil exporter. 

“We should see the economic developments of the upcoming one-two months,” he said on a possible hike on gas and electricity prices.