TURKEY: Political troubles hold up structural reform, says S&P

23 May 1997

Domestic political fragmentation impedes necessary policy decisions by the government for long-term structural economic reform, George Dallas, managing director for US credit rating agency Standard & Poor's (S&P), told an Istanbul conference on 14 May.

'We do think, however, that the outlook is stable, and that the government will take the necessary measures to contain the economy and prevent disasters from happening,' Dallas told the conference organised by Euromoney on Turkish business, finance and investment.

S&P downgraded Turkey in December to B with a stable outlook from B+ with credit watch, citing adverse economic indicators, and performance shortfalls by the Islamist-led coalition government (MEED 3:1:97).

Dallas said bureaucracy needs to be trimmed, social security services streamlined with higher retirement ages, and tax reform is required, particularly in widening the tax base and tackling evasion.

Dallas singled out populist pressures as hindering the government. Agricultural credit subsidies require reform, but large numbers of rural voters make agricultural policies very important particularly for the Islamist Welfare Party (Refah) led by Prime Minister Necmettin Erbakan, Dallas noted.

Further deterrents to investment are adverse economic indicators like high inflation and high real interest rates, Dallas said. The track record so far in privatisation is also not strong, added Dallas, with privatisation receipts not able to generate sufficient revenues until much later in 1997.

However, Dallas noted the central bank's foreign exchange reserves standing of about $17,000 million are equivalent to around three-and-a-half months of imports.

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