‘IMF agreement can ease budget deficit, protect employment’

‘IMF agreement can ease budget deficit, protect employment’

TUSCON President Rıza Nur Meral

January 23, 2010, Saturday/ 16:34:00/ ZAFER ÖZCAN
Turkey needs to sign an agreement with the International Monetary Fund (IMF) in order to attract investment and decrease unemployment, though part of it should be used to cover the country’s enormous budget deficit and also push the central bank to cut interest rates further, Turkish Confederation of Businessmen and Industrialists (TUSKON) President Rızanur Meral has said.

Speaking to reporters on Wednesday after the Turkey-Egypt Trade and Investment Bridge program in Cairo organized by TUSKON, Meral called for the signing of a new stand-by deal between Turkey and the fund. Meral noted that the right conditions for such an agreement are crucial to its effectiveness and said; “At this point, the conditions will open doors for investment and production in Turkey, and will protect employment. With these conditions the agreement will be in Turkey’s favor.”

The contraction in the Turkish economy last year led to a severe decline in tax revenue and to a TL 52 billion budget deficit. In order to finance this deficit, the Treasury borrowed from banks in the private sector and thus restricted the amount of credit available for the real sector. Meral said this situation had led to a severe credit crunch in Turkey. “If there is a new deal with the IMF, the funding can be used to close some of the deficit.

Banks can therefore lend to the real sector, giving some breathing space to both business owners and industrialists,” he said.

Speaking on the record-breaking interest rate cutting spree by the Turkish Central Bank, Meral said if an IMF agreement is reached, then the current interest rate of 6.5 percent is not adequate and needs to be pulled down further to 4 percent. He stressed that in order for the new IMF stand-by deal to be effective, the central bank needs to continue to cut policy rates. “The central bank needs to support this agreement by continuing to drop rates. It should put aside fears of inflation by targeting a high 10 percent inflation rate.”

Meral also criticized Turkish banks, saying they were unable to mirror the success of the real sector in expanding abroad. In order for Turkey to be a global economic player, banks as much as firms need to pursue opportunities abroad, said Meral. He added that public banks, which are currently performing well, should lead the way in the banking sector by setting foot outside Turkey.

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