Current account deficit continues to pose a risk for Turkish economy
Turkey's current account deficit continues to pose a risk to the economy, a leading economics professor said Wednesday.
Harvard University's Professor Dani Rodrik, who advises the Turkish Central Bank, suggested the deficit could be controlled by lowering the appeal of consumer loans, imposing taxes on consumer durables and short-term capital flows - like portfolios - as done in Mexico and Argentina.
"The deficit itself and its financing must be watched very closely," Rodrik told an economics conference sponsored by the Middle East Technical University. He projected a year-end current account deficit of $8.1 billion, up from $5.6 billion in the first half, which he tied partly to high oil prices and the euro's weakness against the dollar.
"It is a large deficit but will be sustainable until mid-2001 if it follows this trend," he said. The Central Bank will exit from the current crawling peg regime in July 2001 and allow exchange rates to move within a gradually widening band.
"The IMF (International Monetary Fund) had made optimistic forecasts about the current account deficit at the beginning of this year," Rodrik said.
He said the disinflation program of the Turkish government was progressing well in a broader sense, despite the circumstances. He advised calm, particularly over month-on-month consumer inflation figures.
Rodrik commented that the economic program had earned credibility in the exchange rate field and many other aspects apart from inflation, because actual inflation was above target.
The professor said private goods and service costs and wages were essential to the success of the program, and urged the private sector, labor unions and the government to set price and wage policies in line with the program.
Meanwhile, in an interview with the semi-official Anatolian news agency, Professor Rodrik said minimum year-end inflation in Turkey would be 27 percent in wholesale prices and 32 percent in consumer prices, as long as the current program continues without any deviation.
The Turkish government has targeted to pull down the annual inflation rate, soaring over 75 percent over the past two decades, to around 25 percent by the end of this year and to a single digit rate in the year 2002.
He said wholesale and consumer inflation would be 33 percent and 45 percent respectively, if the foreign currency regime is changed, the value of the exchange rate basket cannot be maintained and core inflation cannot be curbed.
Rodrik suggested that short-term figures were of little significance in such a medium-term program and called for continuity of decisive implementation.— (Albawaba-MEBG)
© 2000 Mena Report (www.menareport.com)