Stability Institute Director Serdengeçti: “Turkey Compromises Price Stability for Financial Stability.” During the launch meeting of the latest World Bank report, the rise in inflation in Turkey was underscored.

ANKARA – TEPAV and the World Bank carried out a meeting on Tuesday 26 June 2012 to discuss the World Bank report titled “Global Economic Prospects 2012: Managing Growth in a Volatile World.” Delivering an opening speech, TEPAV Stability Institute Director Süreyya Serdengeçti stated that macroeconomic policy had become much more complicated along with the crisis and that since 2010 Turkey had been compromising price stability for the sake of financial stability.

Serdengeçti said that as the world’s experience in the last 5-6 years had shown, recovery from the global crisis had taken as long as it did in the 1930s, and ups and downs had prevailed. He added, “This dimension of the process affects Turkey and peer developing countries to a larger extent. Now we are faced with another risk: abundance of global liquidity. Normally, this is a positive thing; but today, liquidity abundance has been causing large and unstable capital flows.”

“The European crisis might intensify”

Following opening remarks by Florian Fichtl, World Bank Turkey Lead Operations Officer, Andrew Burns, World Bank Development Prospects Group Manager, made a presentation. Sharing with the audience key findings of the report titled “Global Economic Prospects 2012 – Managing Growth in a Volatile World,” Burns stated that economic activity across the world had been strong in the first four months of the year while activities had demonstrated a downturn in May. Burns underscored that developing countries had to focus on structural reforms and target sustainable development in the medium and the long term. He said, “Though it’s not our primary projection, the crisis in Europe will most likely intensify. Developing countries particularly have to be prepared for this. They have to focus on devising more balanced policies and cushioning themselves as they did in 2008 and 2009.”

Stating that countries with high short-term debt and high dependence on remittances, tourism-based economies and commodity exporters will be highly vulnerable ones in the period ahead, Burns stressed that Turkey’s short-term debt was high in proportion to its official reserves.

Panelists call for structural reform…

During the panel session, Ozan Acar, TEPAV senior economic policy analyst;  World Bank Turkey Office lead economist Marina Wes; and Radikal newspaper columnist Uğur Gürses delivered remarks.

Making assessments on the Turkish economy, Marina Wes said:

“The current account deficit is really high. But we estimate that the peak has been reached and the deficit will start decreasing in the coming months. Yet, we are concerned about certain features of the Turkish economy. We believe that there is a pressing need for structural reform in Turkey. There is need for efforts to reduce operating costs and advance flexibility in the labor market. We also believe that Turkey has to improve the domestic savings rate.”

Maintaining that the report was worse than he had expected, Uğur Gürses said that the financial sector would shrink more severely and there was nothing much for central banks to do. Stressing that in this respect Turkey was dependent on Europe, which marked the major vulnerability of the Turkish economy, he added, “reforms must be accelerated while there is time.”

“Public finance could have been stronger”

Ozan Acar stated that the public finances of Turkey could have been stronger, but that the primary expenditures of the public sector after the crisis had been backed by budget revenues. He said, “Budget expenditures could have been $38 billion lower.” Pointing at the rise in private sector expenditures, he argued that today Turkey’s economy was weaker than it had been in 2008. Drawing attention to the deterioration in inflation performance, he stressed that Turkey had the highest level of and the highest increase in inflation among developing countries.

The meeting ended with questions and contributions from the audience.

Please click here for the Global Economic Prospects 2012 report.