Turkish currency not overvalued

Published December 3rd, 2000 - 02:00 GMT

The Turkish currency is not overvalued and tension in Turkish markets is specific to praiseworthy policies in Turkey to combat inflation, an OECD expert said late on Thursday, November 30. 


The head of the OECD division covering Turkey, Robert Price, said: "I hope and expect it will be a temporary squall on the path to stability." 


He suggested that a "shakeout" of weak, secondary banks might be positive in the medium term. 


Speaking against a background of near crisis in Turkish markets over a credit squeeze which has caused the central bank to inject funds, Price revealed: "We've just completed a positive review of the Turkish economy to be published on December 20." 


Turkey is a member of the Organization for Economic Cooperation and Development. 


Earlier, analysts in London had suggested that Turkey was facing a threat of devaluation because the lira appeared unduly strong in relation to reduced inflation, and said that IMF funds were urgently needed to restore confidence and relieve great pressure on reserves being used by the central bank to support the lira. 


Some experts explain that past political delays in Turkey in passing reforms of the banking sector had sapped confidence while weakening the readiness of some banks to adjust to a low-inflation environment. 


If confidence is not restored quickly, then injections of liquidity could push the economy back into a cycle of inflation and rising interest rates, they warn. 


But Price explained: "We think that the fundamentals of the Turkish economy are going the right way.” 


"The one element here, which could be foreseen, is that banks have to adapt to a new, low-inflation regime, doing business in commercial ways instead of relying on government bonds and high interest rates for income. 


"It is natural that some will find it difficult. 

"But the big banks in Turkey are very healthy and maybe a shakeout at the lower end could be quite beneficial." 


Price insisted: "I don't think the currency is too strong. At the moment the economy is adapting quite well to this liquidity squeeze from the foreign exchange rate.  


"The problem is that the monetary policy underpinning the foreign exchange regime has had to be very tight and in the last week or so the monetary authorities have had to suspend one of their monetary aggregates, net domestic credit, which was not going fast enough to provide liquidity - they have had to suspend monetary targets." 


The OECD had given the Turkish authorities "quite high marks" for fiscal policy. 

"It's disconcerting that these problems have arisen after a series of quite positive policy announcements," Price said, referring to tightening of the fiscal target to a 5.0 percent primary surplus next year, the passage of long-stalled bank legislation giving access to World bank money, and an action plan for solving problems at 10 banks. 


Playing down suggestions that there might be contagion in other emerging markets, notably in eastern Europe, Price stressed: "This is a specific crisis related to a disinflation program and problems arising from the pursuit of fiscal and monetary rectitude."— (AFP)  


© Agence France Presse 2000  

© 2000 Mena Report (www.menareport.com)

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