In his five months in office, Turkey's Economy Minister, Kemal Dervis, has rammed through legislation intended to address the causes of the country's perennial economic woes. In a wide-ranging interview--one of his first since taking office--Dervis told Europe Regional Editor John Rossant that Turkey is close to a turnaround. His views:
On whether U.S. Treasury Secretary Paul H. O'Neill opposes IMF bailouts.
O'Neill rightfully has stressed two aspects of this, and not just for Turkey. One is that there's a danger in extending the message that whatever happens, there will be massive support for important countries. And second, he has stressed the need for tough, front-loaded programs. He's not at all against the principle of conditioned support for good programs. He was very supportive of the IMF/World Bank package.
Comparing Turkey to Argentina:
Turkey maybe was in the same boat as Argentina before February, when we had a fixed-exchange-rate/currency-board-type regime. But now, [Turkey's flexible rate] will adjust to external and internal shocks, and we're not in a position of having to defend at all costs a particular parity.
On Turkey's fragile economic health:
We continue to be in a crisis. However, the current-account balance, which had a $10 billion deficit last year, had turned into a surplus by the end of May. We will have a close to $5 billion current-account surplus this year. Turkey is slightly overperforming in terms of the primary budget surplus--the surplus net of interest payments. And finally, there is a sharp decline in inflation. Now, for all this to turn the real economy around and to ease the public-sector financing balance a little bit, we of course need interest rates to start declining. That's key.
On the long-term prognosis:
I believe that the reforms in the last months--even in the last 18 months--have made a difference. The legal infrastructure for a much more competitive system, for much less political interference in the day-to-day working of the economy, for a much more open and transparent society, is being put in place. The whole state bank sector, which was a source of tremendous populist politics and extremely irresponsible behavior, has been radically changed. The agricultural system in the next 12 months will be a completely different system. Price supports way above world prices will be things of the past. And those were a big source of inflation...[T]hat has now been surgically removed.
On his own prospects:
In terms of running for office, it wouldn't be productive for myself or other members of the economic team to get involved in party politics. At this point, we are trying to implement a very difficult program, and we need support from as many parts of society as possible.