Babacan: Turkey’s economy hurt by oil price hike

Babacan appeared on Turkish state television news station TRT Haber yesterday. He touched upon the current Libyan turmoil and said rising oil prices depend entirely on political developments, adding that he cannot predict when this rise will come to an end. “Turkey’s economy will be negatively affected by the current oil price hikes, especially in the context of inflation and the current account deficit,” Babacan said. “Every $10 increase in oil prices widens Turkey’s current account deficit approximately by $4 billion and increases the inflation rate by a half point,” he stated.

The trouble in the Middle East and North Africa, which sparked a sharp pullback in global stocks early last week and worries over violence spreading to the world’s biggest oil-producing country, Saudi Arabia, increased benchmark crude for April delivery by 37 cents to $104.75 a barrel in electronic trading on the New York Mercantile Exchange on Thursday. In London, Brent crude for April delivery was up 16 cents to $116.10 a barrel on the ICE Futures exchange.

Commenting on criticism that tax rates on fuel prices are high, the deputy prime minister underlined that the pump price of a liter of fuel depends on factors such as the barrel price of oil, the value of the US dollar against the Turkish lira, the profit margin of fuel distributors and taxes on fuel. “In the last one year we haven’t changed the tax rates on fuel. The reason why prices are high is rising oil prices in the international market, the depreciation of the lira against the US dollar and the increasing profit margins of fuel distributors,” he noted.

“The Energy Ministry and the Energy Market Regulatory Agency [EPDK] are carefully following the fuel distributors,” Babacan said, referring to the fact that the state has the required expertise to measure whether fuel distributors equitably reflect price movement in the oil market on pump prices. “If we find any irregularity, we will take the required steps.” However, Babacan said it is not the best solution for the state to interfere in the private sector. He added that state interference is not likely to occur in sectors where competition is doing well.

Separately, in response to a question inquiring whether there will be an increase in export subsidies, Babacan said his government would like to give more support to companies; however, it also needs to move forward with tight fiscal discipline. “You can see many politicians who promise many things just ahead of the general elections to be held in June. But the Justice and Development Party [AK Party] will not be involved in populist spending to win the hearts of the voters without considering the budget deficit. I did not get involved in any similar engagements in our eight-year-long term in office.”

Moreover, Babacan said the government’s number one priority for this year is to maintain stability, which, he said, will secure high international credibility since investors attach the utmost importance to political stability in the country. Babacan also argued that Turkey’s net capital inflow was always positive, even in financially depressed periods. “In the last eight years, the capital inflow to Turkey has always been larger than the outflows,” he stated.