Turkey Unveils Reform Package to Revive Growth

Turkey’s government on Wednesday said it would increase support for state banks, bring in measures to curb inflation and overhaul taxes as part of reforms aimed at tackling an economic slowdown.

Turkey slipped into recession for the first time in a decade last year following a sharp currency crisis that sent inflation soaring into double digits and hit Turkish households hard.

Turkish companies, who enjoyed a boom in foreign credit during the country’s growth years, have also been hurt as a weaker lira left them burdened with higher foreign debt payments.

Finance Minister Berat Albayrak announced the reform package days after the ruling AKP lost the capital Ankara and Istanbul in a tight local election where high living costs and the slowdown were key voter concerns.

Worried over fiscal policy under President Recep Tayyip Erdogan, investors were also watching Wednesday’s announcement to gauge whether Turkey would take the long-term measures for growth and restore credibility.

“Without any elections for the next four years, economic reforms will top our agenda,” said Albayrak, who is also Erdogan’s son-in-law.

“Strengthening state-run lenders’ capital structure will be our first step,” he said.

He said the government will issue 28 billion lira ($4.9 billion) in domestic securities to bolster state banks while private banks will also get support.

Albayrak said structural reforms in agriculture will target high food prices, and the package includes tax adjustments, pension reforms and loans to strategic sectors.

Erdogan has said his government would focus on strengthening the economy with no elections scheduled until 2023 presidential and legislative ballots.

Investor jitters

Since Erdogan came to power in 2003 in the wake of the financial crisis in 2001, the Turkish leader has consistently won at the ballot box thanks in part to the country’s economic growth.

Supporters point to improvements in living standards and progress in infrastructure during his time in power. Critics say he has eroded democracy, especially after a crackdown following a failed 2016 coup.

A 2017 referendum on constitutional reforms handed Erdogan extended powers as president.

Investors are jittery over his economic policies, and the central bank’s independence. They worry the government will prioritize short-term political gain over long-term austerity measures.

With food prices rising, Erdogan in February ordered local authorities to open vegetable stalls in major cities to provide vegetables and fruits at cheaper prices to force supermarkets to lower their prices in the run up to the election.

Investors were also concerned the government had tapped reserves to shore up the lira in the lead up to the March 31 election. The lira fell nearly 6 percent in one day of trading because of investor worries.

Turkey’s inflation in March was 19.71 percent, slightly up from 19.67 percent in February but down from a 15-year high in October 2018 of 25.24 percent.

This month the IMF said it expected Turkey’s economy to contract by 2.5 percent in 2019 before growth of 2.5 percent in 2020. It forecast inflation at 17.5 percent this year, falling to 14.1 percent in 2020.