OECD Economic Outlook 69 - Biblioteca Hegoa

136 - OECD Economic Outlook 69
ample liquidity, which has stabilised the overnight rate, but could conflict with the
need for a tighter stance.
Incomes policy is critical In 2000, the wages and incomes of groups such as civil servants, minimum
wage earners, and farmers were linked to the inflation target. These groups have
borne the brunt of the real wage adjustment. Following the adoption of a floating
exchange-rate regime, the authorities have stated their intention to extend the
incomes (and price) policy to all components of society, including state enterprise,
private unionised and white -collar workers, and firms. Though difficult to achieve,
given the loss of monetary credibility during the crisis and the need to absorb large
post-devaluation real wage cuts, such a policy will be essential for establishing a
measure of social cohesion behind the new strategy.
The fiscal outlook has
deteriorated severely
Domestic demand will
contract…
A significant primary budget surplus (i.e. net of debt interest payments) was
achieved in 2000 with the help of high growth and continued use of one-off tax measures.
Primary expenditures were kept almost constant in real terms. In preparation
of the 2001 budget, favourable macroeconomic conditions were assumed to continue
and a 5 per cent of GDP target for the primary surplus was announced. Post-crisis,
the target has been maintained, which on the basis of OECD growth projections
(below) implies a severe tightening in cyclically-adjusted terms. The crisis has had
an adverse impact on debt service due to higher interest rates; on personnel and current
expenditures because of higher inflation; and on tax receipts, which have been
affected by the weakness of economic activity. Thus, achieving the targets will
require severe cuts in public expenditure. Besides the burden of rising government
bond yields, a deterioration in the debt dynamics will derive from the shortening of
the maturity structure of the debt, the high costs of the bank clean up (backed by a
full guarantee of domestic deposits and foreign liabilities), and continuing delays in
the privatisation programme, with Turk Telekom and Turkish Air not yet sold.
The tightening of macroeconomic policies and real balance sheet losses induced
by the devaluation, will lead to a severe contraction in domestic demand (12 per
cent) in 2001. However, an improvement in the external contribution will limit the
contraction of GDP to about 4 per cent. Implementation of the new stabilisation programme
should gradually restore confidence and permit real interest rates to decline
toward the 15 -20 per cent level by next year. This is expected to produce a stabilisation
of domestic demand, while export performance should continue to benefit
strongly from the real devaluation of the lira which will be only slowly unwound.
Overall, growth of perhaps 5 per cent may be expected in 2002. Inflation, following
a spike in the price level of 25 per cent in the early aftermath of the devaluation (representing
a pass-through of roughly one-half), is assumed to begin to moderate in the
coming months. On an annual basis, consumer price inflation is projected to hit
80 per cent by end-2001, but then to fall to 30 per cent by end-2002. The current
account is expected to remain in moderate deficit this year, before shifting to nearbalance
by 2002.
… but major risks remain The collapse of the programme has intensified the risks facing the Turkish economy.
The chief danger is an inability to stabilise the exchange rate and bring down
the country risk premium due to the difficulty in rebuilding confidence. Not only
would this magnify banking system problems and fiscal stress, but it could also usher
in a return to accelerating inflation and budget instability, locking Turkey into a prolonged
period of slow growth.