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IMF: Turkey Should Pursue Fiscal Policy to Reduce Inflation Rate

IMF: Turkey Should Pursue Fiscal Policy to Reduce Inflation Rate

Sunday, 14 April, 2019 - 11:15
Turkish Treasury and Finance Minister Berat Albayrak attends a news conference in Istanbul, Turkey, April 10, 2019. (Reuters)
Ankara - Saeed al-Abyad
Turkey should pursue a fiscal policy aimed at reducing the inflation rate that touches the 20 percent limit, said International Monetary Fund (IMF) Managing Director Paul Thompson.

Thompson indicated that Turkey should follow transparency, continue to tighten monetary policies, ensure the independence of the central bank, monitor developments in the financial sector and take measures against any bad situation.

Speaking on the sidelines of the spring meetings of the IMF/World Bank in Washington, the official said the Turkish economy is currently in a recession, but Ankara is able to overcome this stage through structural reforms.

He was quoted by Turkish media as saying the structure of the economy is based on a strong foundation.

Thompson noted that Ankara has taken important measures over the past six months and must continue its anti-inflation policies, asserting there were no current talks between Turkey and IMF for loans.

In a related context, Turkish Finance Minister Berat Albayrak offered little convincing detail of his economic turnaround plan and failed to enthuse investors at a private meeting in Washington on Thursday, according to four people who attended told Reuters.

Albayrak and Turkish central bank governor Murat Cetinkaya met with about 400 investors and outlined the reform package that the minister unveiled in Istanbul on Wednesday.

Albayrak’s upbeat view of Turkey’s expected rebound failed to resonate in Washington, said the sources, who requested anonymity.

One source told Reuters that Albayrak pointed to a recent dip in prices and the improving current account balance to argue that Turkey was doing much better today than in October, when it was emerging from a major currency crisis.

“I don’t think he persuaded anybody, it did not go well,” said the investor, who attended the conference hosted by investment bank JPMorgan.

The investor pointed that recent policies to more supportive policy stances by the US Federal Reserve and the European Central Bank (ECB), which have led investors to seek returns in riskier assets, which helped support the Turkish markets.

“If it weren’t the case that the Fed and ECB currently present no risk to emerging markets, I would be a big seller of Turkey,” the investor said.

The Turkish lira slid as much as 1.4 percent on Friday, among the worst performers in emerging markets, and the main Turkish stock index was down.

The selling at times echoed last year’s currency crisis which was sparked by strained US diplomatic ties and worries over central bank independence and a years-long buildup of foreign currency debt.

The lira dropped some 30 percent in 2018, causing the economy to tip into a recession that economists expect will extend at least into the second half of this year.

Before traveling to Washington, Albayrak pledged to inject nearly $5 billion in new capital into banks struggling with a spike in non-performing loans.

However, analysts said the long-awaited reform package, which also included promises on taxes and exports, did not go far enough to mark an unambiguous break from years of credit-fueled growth.

Moody’s said the plan lacked detail and was vague on a timetable.

Two investors who attended the meeting in Washington indicated that Turkey needed to better articulate the government’s longer-term vision for market participants.

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