In Turkey’s economic plan, investors see drive for votes, not discipline
Turkey’s new economic program is short on reform and long on populist measures aimed at winning support for a new constitution, investors have decided, leading them to dump Turkish assets for a second straight day on Friday.
Financial markets had been looking for Prime Minister Ahmet Davutoglu and his AK Party to deliver on promises to stick to fiscal discipline and outline plans to boost labour productivity and household savings.
Instead, Davutoglu rolled out an economic plan on Thursday more in line with populist, consumption-led policies favored by the AKP’s founder, President Tayyip Erdogan.
Some critics see the measures – including higher pensions and subsidies for first-time job seekers – as aimed at raising popularity before a possible referendum on a new constitution that would increase Erdogan’s presidential powers.
“The program evokes a populist, referendum economic plan,” Ugur Gurses, a columnist at the newspaper Hurriyet, told Reuters.
While Davutoglu says economic reform will be top of his agenda, Erdogan has repeatedly declared his priority is a new constitution replacing a parliamentary with a presidential democracy – something critics fear would mark a drift to authoritarian government under the president.
Investors were unequivocal, sending the lira currency to its weakest in two months and the stock market down about 5 percent in two days.
“The government’s action plan for 2016 is a real disappointment. I fear that we will face a budget disaster,” said Atilla Yesilada, an economist at Global Source Partners.
“This will not help solve the economy’s efficiency problem at all. This is an unbearable luxury for a poor country like Turkey.”
Although the net cost of the new policies has yet to be calculated, analysts said the plan signaled a significant burden on public finance and also a clear support for domestic consumption.
Deputy Prime Minister Mehmet Simsek said in October the AKP’s election pledges would cost the country $6.5 billion. Analysts say it may be more.
As a result, Turkey could see a higher budget deficit than the initially announced 0.7 percent of GDP, said Ozlem Derici, chief economist of Istanbul based Deniz Invest.
The government plan foresees some regulations to enhance flexibility in work life and some incentives for manufacturers, but investors want to see more details, and signs of political will.
“The list of structural reforms … lacks details regarding the steps to be taken and legislative changes required,” said Muammer Komurcuoglu, an economist at Is Investment, in a note to clients.