Turkey's economy is recovering from the sharp recession of 1999 with growth of 4.9 percent expected this year but it remains under threat, particularly from high inflation, the OECD said Thursday, January 11.
Economic growth was expected to ease to 4.9 percent this year from an estimated 7.0 percent in 2000, and slow to 4.4 percent in 2001, said the report by the Organization for Economic Cooperation and Development (OECD), which groups 29 industrialized nations.
Turkey must now stick to the tough conditions of its reform program agreed with the International Monetary Fund, which bailed out the country late last year as a cash-crunch sparked a run on the stock market, the OECD said.
The country, which suffered 20,000 deaths from powerful earthquakes in late 1999, was enjoying the "beneficial influences of a favorable external environment, a more settled political climate and post-earthquake reconstruction," the OECD said. "More importantly, the negotiation of a tough, and so far, highly credible, stabilization program with the International Monetary Fund has led to a marked fall in interest rates," it said.
But Turkey's recovery was taking place against a background of an unsatisfactory economic performance, where real gross domestic product per person grew only 1.5 percent over the past decade. The growth rate was below the OECD average and well below rates in the most successful emerging economies. The task lay in improving living standards, it said.
"In this respect, the current stabilization program offers the best chance, perhaps for some time to come, to attain a path of balanced, non-inflationary growth while achieving a degree of convergence with the EU, for which Turkey is now a candidate."
The OECD called on Turkey's monetary authorities to adopt a medium-term inflation target to reinforce credibility. "Such a clarification is all the more important because, despite substantially lower inflation, the inflation target of 25 percent by the end of 2000 will not be realized," the report said.
The Turkish state statistics institute said this month that consumer prices rose by 39 percent in 2000. The government has said that it will not revise its 12-percent target for 2001 and will instead implement tighter economic measures.
Despite missing the inflation target, confidence in the IMF program would be maintained if the economic reforms proceeded as planned, said the OECD. "However, this slippage should not be allowed to undermine the rapid achievement of price stability."
Turkey's current account deficit was another worry, the report said. “By September 2000, the level of the current account deficit of $6.8 billion was already more than four times higher than the full year deficit for 1999," the OECD noted, blaming high oil prices and surging domestic demand.
The current account deficit could widen to more than four percent of GDP in 2000 before moderating to three-to-four percent over the next two years, it said. This would be affordable, however, if the government sticks to reforms. "Nevertheless, excessive wage settlements could exacerbate the already disadvantageous trend in relative unit labor costs and accelerate the deterioration in the trade balance," the OECD warned.
Chronic fiscal deficits had been the main cause of Turkey's inflationary inertia and fragile investor confidence, the report said. So far, the budget was on track, but measures should be taken over the medium term to widen the tax base and control spending, it added. — (AFP, Riyadh)
© Agence France Presse 2001
© 2001 Mena Report (www.menareport.com)
