DENIZLI, Turkey: Turkey is considering setting explicit fiscal rules to support budget discipline as the government continues technical work on a possible IMF precautionary stand-by accord, the economy minister said.
In an interview with Reuters yesterday, Mehmet Simsek also said reining in a widening current account deficit should be the fundamental goal of Turkey’s economic program. “Serious work is being conducted on fiscal rules. We need an approach which fits Turkey’s conditions, which does not lose flexibility altogether but also brings serious discipline,” Simsek said.
Simsek’s comments came after concerns in the financial markets that the government might opt for higher spending ahead of local elections in 2009 to spur slowing economic growth. The government has cut a key primary surplus target to 3.5 percent for this year from 4.2 percent after its 3-year, $10 billion stand-by accord expired in May. That target was 6.5 percent for several past years under the International Monetary Fund accords.
Investors are closely watching for any clue of the government’s decision on the IMF follow-up deal. Turkey may choose a precautionary stand-by accord with access to IMF loans or a less stringent post-program monitoring deal.
The IMF has called on Turkey to formalize its existing fiscal targets by making public pledges and said it can implement a fiscal-rule regime in the context of a precautionary stand-by accord. Loose fiscal policy was a major reason behind Turkey’s economic crisis in 2001, which wiped out 10 percent of the national income and left thousands without jobs.