ECONOMY IS MOVING IN THE RIGHT ORBIT
Economic fundamentals are promising, but curbing inflation is slow. Quarterly targets are under IMF monitoring. First half of year is proof of success. There will be no supplementary budget this year. Privatization downgraded to $9 bn. Social security reform will be passed. Natural gas imports will reach 45 bn cubic meters in future years.
To show the Turkish economy’s “good health”, PM Mesut Yılmaz cited the following indicators of the economic fundamentals in his press conference on July 4th:
Agreement with IMF is not the Fund’s shock program
PM Mesut Yılmaz boasts that the Letter of Intent Turkey gave the IMF on June 27th was based on the Government’s economic stability program and not on the IMF’s “shock program” to cut down inflation sharply within a year. Even the Fund is now admitting that Turkey’s program is proving to be more successful compared to the other countries which apply such shock programs within the IMF’s standby agreements, says Yılmaz.
He also pledges that they would never sacrifice the principles of this disinflationary policy for the sake of populist policies during the election period ahead. The Government does not have the slightest difficulty in promptly repaying domestic and external debts, and Turkish enterprises (State owned or private) meet with no problems in finding loans from international markets.
“The quarterly targets,” said PM Yılmaz on Saturday, “prove that in the first six months we have fully attained our targets.”
According to the figures he cites, in the first quarter the budget deficit was TL171 trillion less than the estimate, and the surplus of public revenue, excluding interest payments (TL514 trillion), was TL160 trillion more than the foreseen TL354 trillion. Domestic borrowing remained at the foreseen figure - TL2.4 quadrillion. But through falling interest rates and extended terms of loans, the debt repayment burden was eased in real terms. Reserve money remained at the foreseen rate of 17.3%
The second quarter foresees TL2.5 quadrillion revenue, TL4 quadrillion expenditure, TL1.5 quadrillion budget deficit and TL450 trillion surplus excluding interest payments. In the April-June period the actuals of these figures were: TL2,948 trillion revenue, TL3,895 trillion expenditure, TL947 trillion deficit and TL873 trillion surplus excluding interest payments. “Much better than the expectations and a considerable improvement on the first quarter’s already successful performance”, says the Prime Minister.
In other words, in the first half, the Government has kept its pledge to the IMF “to follow policies designed to preserve macroeconomic stability through strict fiscal policy, a supportive and closely-coordinated monetary policy, and structural reforms, including stepped up privatization.”
“According to the latest data available,” says PM Yılmaz, “The six months budget revenue in the January-June period is TL4,989 trillion, expenditure TL6,896 trillion, deficit TL1,907 trillion and surplus excluding interest TL1,387 trillion. We have, therefore, given no concessions on our economic stability program and excelled on the targets. Furthermore, we have achieved this despite several inundation and earthquake disasters and their burden on the economy. This year there will be no supplementary budget.”
Most successful year in privatization
“The State must totally quit the economy,” stresses PM Yılmaz and explains that as against $3.4 bn privatization carried out in 12 years since it started in 1986, $3.2 bn privatization has been achieved so far this year, including POAŞ (the Petrol Office). Until the end of the year they will increase this sum to $9 bn - $2.6 bn from the Privatization Agency’s portfolio, $4 bn from the transfer of GSM (mobile telephone) licences transfer and Telecom and $2.4 bn from the energy sector.
The Government initially planned to make $10 bn privatization this year, but upgraded it to $12 bn later on and has downgraded it to $9 bn now. It is still a massive achievement if these objectives are obtained due to constant difficulties raised in the way of privatization by Professor Mümtaz Soysal (DSP, Zonguldak) and certain unionists.
A case in point was the tenders held in great transparency in front of the TV cameras for the sale of POAŞ. A relatively small businessman, Hayyam Garipoğlu surprisingly defeated at the tenders the nine other bidders which were composed of the strongest banks, holdings and corporations of the country.
As against $1,160 million offered by Garipoğlu, who immediately went to London to find the necessary financing, the consortium including Garanti Bank and Doğuş Holding came second with $1,150 million and another consortium including İşbank and PÜIS (The Petroleum Products Employers’ Union) as well as two big Holdings, Bayındır and Park came third with $1,110 million.
Both the Mümtaz Soysal group and the newly founded Competition Board opposed the result. The Competition Board has to be consulted about the companies concerned and this had not been done properly. Both the Judiciary and the Board are expected to take a verdict about this deal, but if either of them decide to repeal the tenders, the Government does not take any notice by tradition. However, PM Yılmaz said to PÜIS that the final decision about the tenders would be taken by The High Council of Privatization chaired by him and that the highest price would be only one of the factors they would take into consideration. So it is not certain that Garipoğlu will be able to get the contract in the end. The second or third bidders may well be preferred in the end, as their offers are quite close to the winner.
Energy privatization and natural gas imports
Also, the $2.4 bn the Prime Minister is expecting from the energy sector’s privatization in the next six months is heading for finalization. Before the judicial recess starts on July 20th, the Administrative Court (Danıştay) is expected to take the final verdict about the privatization of eight (Tunçbilek, Çayırhan, Kangal, Orhaneli, Yatağan, Çatalağzı-B, Soma A-B and Yeniköy-Kemerköy) thermal plants totalling $1,240 million and the privatization of 15 transmission lines totalling $1,695 million.
PM Yılmaz said that last year they imported 9.5 bn m3 of natural gas. “Our target is now to increase this figure to 45 bn m3. We have recently concluded an 8 bn m3 natural gas agreement with Russia. Furthermore, we will get 16 bn m3 more natural gas from Russia with the Blue Current pipeline project. The Russian part of this construction is going on. We will soon start the Turkish part.”
In August, Turkey, Azerbaijan and Georgia are expected to sign an agreement for the materialization of the Baku-Ceyhan oil pipeline. It will establish the royalties of the oil to be pumped through this pipeline and pave the way for the conclusion of the host countries’ agreement for this pipeline, along with the contract to be signed with the consortium to build this $2.3 bn project, affirm Energy Ministry sources. High-level representatives of Mobil are expected to visit Turkey this week for talks on the Baku-Ceyhan pipeline and other energy questions. Mobil has apologetically informed Turkey that they were now importing oil from Turkmenistan via Iran with a swap arrangement pending the materialization of the Baku-Ceyhan pipeline whose construction is expected to be delayed because of the drop in oil prices.
This initiative by Mobil and other multinationals in dealing with Iran is a relief for Turkey in that it has put an end to the American embargo on Iran. The Iranian natural gas pipeline is now stretching towards Erzurum and further inland of Turkey. ( issue no: 4)
Need for reform in social security stressed
PM Yılmaz underlines that the budget foresees TL2.5 quadrillion for public investments this year. Yet the Government’s subsidies to social security organisations totals TL1.4 quadrillion in the same year. “When citizens of the creditor countries are retiring at the age of 65-70, we cannot afford the luxury of our workers retiring at the age of 38 for women and 43 for men.Turkey can no longer carry this burden” he says. The Prime Minister expects that they will be able to pass the social security reform before the elections. uras@ada.net.tr.