Need for fiscal rule obvious, report says

ANKARA

Ali Babacan says Turkey should rapidly penetrate into new markets because of the narrowing in traditional exports markets. AA photo

Turkey should put an end to discussions on the methodology of increasing spending and take urgent steps toward making structural changes, said a report released by the Economic Policy Research Foundation of Turkey (TEPAV), which criticized the absence of a fiscal rule.

The report said Turkey’s income per capita still lagged behind the developed countries, “If we had begun the implementation of a fiscal rule we would not have to make fiscal policy decision in the second half of September, a wrong time, which will narrow domestics demand,” the report said.

Two years ago the government withdrew from announcing fiscal rule, claiming that it would implement a “fiscal discipline” instead.

The Cabinet ministers have been discussing publicly for weeks whether to cool down the economy or take steps for a further boom to catch a 4 percent year-end GDP growth target.

Last month the Central Bank moderately eased its policy, pushing the upper end of its interest rate corridor by 1.5 percent, but this was accompanied by a tax hike on oil, cars and alcohol. The natural gas prices will soon increase also, another development that will apparently cut domestic demand.

The TEPAV report also emphasized that high energy prices were creating a problem of “low growth rate, high current account deficit and high need in foreign resources.”

TEPAV forecasted that the slow growth would continue in the first quarter of next year, underlining the role of global risks. Another factor it said was the Central Bank’s limited capacity to sustain an easy monetary policy.

The Central Bank’s forex reserves are around $110 billion, Prime Minister Recep Tayyip Erdoğan said at his party congress in Ankara yesterday.

The recent measures “might create displeasure in the short run but we have to be realistic and carefully continue with balancing for the country’s long run stability,” Deputy Prime Minister Ali Babacan, the head of the Cabinet’s economic council who is defending a cautious policy against Economy Minister Zafer Çağlayan, said in a Sept. 29 meeting of the Confederation of Businessmen and Industrialists of Turkey (TUSKON) in Istanbul.

The deputy prime minister also said Turkey should rapidly penetrate into new markets because of the narrowing in traditional exports markets.