Turkey announced Wednesday, March 14, several urgent measures to confront a financial crisis, saying it would clean up its ailing banking sector, extend privatization and rein in spending. It was the first step in a recovery program for the battered Turkish economy. The measures were mostly aimed at restructuring public banks, which have been making huge losses, and speeding up privatization, Economy Minister Kemal Dervis told a news conference.
"These are the most urgently needed measures and only the beginning of the new program on which we are continuing to work," he said, adding that revised macro-economic targets such as for inflation and growth would be announced later. "Inflation will be high in March and April and we will start working on pulling it down in June," Dervis added.
The minister said the economy was contracting, but expressed optimism that it would begin to grow in the second half of the year as the measures were implemented. Financial turmoil sparked by fears of political instability forced the government on February 22 to abandon a pegged exchange rate, disrupting a three-year IMF-backed anti-inflation plan in place since December 1999.
Under the package, Turkey's three public banks, Halk, Ziraat and Emlak, which have lost some $20 billion (22 billion euros), would be run by a joint autonomous board, independent of government. The board will be in charge of reconstructing the banks and completing their privatization within a year, while closing down excess branches in and laying out personnel at retirement age.
Two of the banks, Ziraat and Emlak, will be merged.
"In the past, the public banks have been burdened with irrelevant duties. This burden will be lifted," Dervis said. Governments, with political gains in mind, have long used public banks to give out agricultural subsidies and low-interest loans to small-scale businesses. The package said the state needed 16 thousand billion lira (some $16 billion) to put the three banks on track and the treasury was to issue bonds to generate the funds.
"We will also take all necessary measures for reforming the private banking sector," Dervis said, adding that a series of amendments in existing laws will be required.
Turkey's crowded and corruption-ridden banking sector, which has a large foreign currency debt and has long relied on government bonds, is seen as one of the main sources of recent financial woes. Twelve private banks have been taken over by the banking watchdog in the past two years. In an extended and accelerated state privatization program, 51 percent of Turkish Telekom would be sold off instead of the previously announced 33.5 percent.
The sale process of Turkish Airlines and other state-run enterprises also would be speeded up. Public expenditure would be reduced to minimum with no new institutions to be set up unless they were already envisaged in the budget. A supplementary budget would be drafted to cover the cost of rising prices and additional expenditure triggered by the flotation of the lira, which lost some 30 percent against the dollar in three weeks.
The central bank, however, will intervene to prevent excessive fluctuations of the currency in the short-run, but will refrain from influencing its long-term value. For the past two weeks, Dervis has been holding talks with Prime Minister Bulent Ecevit and finance officials on a new economic program to cope with prospects of rising inflation and extra budget expenditure. Dervis said the final aim of the complete program will be to "reduce inflation to a single-digit, to rectify income distribution and ensure a sustainable growth environment".
"We definitely need foreign support, but it is not yet clear under what conditions and from what channels it will arrive," he said. Under the original IMF-backed program, Turkey was aiming to reduce chronic inflation, 39 percent in 2000, to 12 percent at the year end, but officials have said the target will be revised up after the floatation of the lira. —(AFP)
© Agence France Presse 2000
© 2001 Mena Report (www.menareport.com)