Lighting A Fire Under Turkey
Turkey's new Economy Minister, Gunes Taner, has his work cut out for him: an economy plagued with 76% annual inflation, a soaring budget deficit, and one of the world's most unbalanced social security systems. Taner has been on the job just five weeks, but it seems the financial community--at home and abroad--is betting he'll reverse years of economic stagnation.
The tough-talking Taner is part of Turkey's new secular coalition government. Led by Prime Minister Mesut Yilmaz, this alliance of conservative and leftist parties came to power on June 23, ending 11 months of fundamentalist Islamic rule. Although Taner's policies may rankle labor unions and some left-wing politicians, investors seem to welcome the change. The appointment of the former Citibank vice-president "brought an immediate feeling of relaxation and confidence to the market," says Kaya Didman, chairman of Bender Securities in Istanbul. The Istanbul Stock Exchange's leading index surged 26% between June 18, when Islamist Prime Minister Necmettin Erbakan resigned, and July 14. Some profit-taking followed.
STEAMROLLER. Investors still have reason to be hopeful. The financial community remembers Taner, 48, as a top-level aide to Turgut Ozal, the late Prime Minister who opened Turkey's economy in the 1980s. As Economy Minister under Ozal and his successor Yildirim Akbulut--from 1989 to 1991--Taner steamrolled through a series of laissez-faire reforms--including floating the Turkish lira, freeing interest rates, lifting foreign exchange restrictions, and easing the repatriation of profits earned by foreign investors--that transformed Turkey into an investor's paradise.
Now, local and international investors are betting that Taner can work that magic again. On July 25, the World Bank agreed to lend Turkey $1.5 billion over the next three years and said that the International Monetary Fund might kick in an additional $5 billion loan if Turkey makes real progress toward economic reform.
Taner isn't promising any miracles. He maintains the economy is out of balance. To tame inflation this year, he says, "we would have to slam the brakes on the economy and risk throwing everyone through the windshield." Instead, Taner is squeezing subsidies out of a variety of industries and adjusting prices. Taner has hiked Istanbul bridge tolls by 150%, raised telephone charges by 50%, and upped prices a hefty 32% on gasoline and 30% on cigarettes and alcohol.
These increases will fuel inflation, but "they are really just bringing public sector prices in line with world levels," says David Edgerly, head of Alliance Capital Management's office in Istanbul. He adds: "For the first time in many years, I get a feeling that the government has a cohesive plan...[to reform the economy] without killing the private sector."
UNDAUNTED. High on Taner's agenda is jump-starting Turkey's stalled privatization program, which has netted just $4 billion since 1985. Undaunted, Taner reckons he can raise an additional $4 billion in the next five months by speeding the sale of shares in Turk Telekom, oil refinery Tupras, steelmaker Erdemir, and other state-owned companies. Brimming with optimism, Taner says the government will sell off a further $12 billion in assets in early 1998. By selling Turk Telekom's license to two private cellular-telephone providers, Turkey hopes to fetch a quick $1.1 billion.
Even more lofty is Taner's proposal to revamp the country's pension schemes. The state-financed social security system, which allows men to retire at age 43 and women at 38, posted a $6 billion deficit in 1996. But with new elections likely next year, few economists expect any immediate restructuring. Yilmaz is unlikely to back controversial measures that could turn voters against his center-right Motherland Party. And the Democratic Left Party, a coalition partner, has long opposed free-market reforms.
Yet the Economy Minister remains confident. Even without major economic reform, "voters ought to like what they see," says Taner, between puffs on a cannon-size cigar. Indeed, betting that Taner will keep his pledge to reduce government spending, many financial analysts have lowered their 1997 budget deficit estimates--from more than $16 billion to less than $14 billion.
Taner has a Herculean task ahead of him. But if he can hit even some of the ambitious targets before the next elections, there's a good chance that voters will welcome the government back. Maybe next time around, he'll tackle pension reform.