Turkey Financial News » Comments & Analysis

Contractors pin hopes on gov’t for repayment of debts in Libya

meb — Thu, 03 Nov 2011 09:11:51 +0000

Turkish contractors, long unable to receive payments for projects in an unstable Libya, woke up Wednesday with renewed hope as Economy Minister Zafer Çağlayan arrived in Tripoli to discuss a solution for the problem with the country’s new rulers, the National Transitional Council (NTC).

Following months of heavy fighting against dictator Muammar Gaddafi, NTC fighters gained full control of Libya last month. Turkish construction companies that have the largest share of Turkish investments in Libya had to suspend projects following the national unrest.

Companies have failed to receive payment for projects — estimated at around $1.5 billion — they had completed prior to the uprising.

Economy Minister Zafer Çağlayan and a group of Turkish construction contractors met with Libya’s National Transitional Council (NTC) to discuss the future of payments of around $1.5 billion during a one-day visit on Monday. Observers said the visit had significant importance considering this is the first face-to-face interchange with the NTC on construction project payments following the council’s recent internationally recognized victory over Gaddafi forces. The minister met with Mustafa Abdul Jalil, head of the NTC on Wednesday in Tripoli. Speaking prior to the meeting, Abdul Jalil said they were grateful for Turkey’s support during the conflict and that Turkish companies will have a significant role in rebuilding the country’s civil war-torn towns. “Turkish companies will reconstruct buildings all across Libya, and some of these will be allocated to Libyan residents. This will be a great example of solidarity for future generations,” he explained. “Turkish companies had undertaken great projects in Libya, and they are famous for their quality work,” the NTC head added. Turkey has lent financial support as well as humanitarian assistance to victims of the Libyan conflict. Both Çağlayan and Abdu Jalil were expected to inform reporters about unpaid debts through the end of the day. The problems, however, may not come to an end as security is another issue that remains to be solved in the North African country.

Some Turkish contractors voiced concerns a possible authority gap in the post-Gaddafi Libya could endanger projects, currently underway at a total value of $15 billion. Turkish businesspeople are now hoping the government will also help secure the business rights they enjoyed during Gaddafi’s rule. But the issue that needs to be addressed first is the current unpaid debts. Evaluating the developments to Today’s Zaman on Wednesday, Association of Turkish Building Material Producers (İMSAD) Chairman Hüseyin Bilmaç said they attached utmost importance to healthy cooperation between Turkish advisors, industrialists and contractors in Libya. “This is crucial in maintaining our leadership in the Libyan construction market. … We are expecting the new government to address the safety concerns in the coming months,” he argued.

Speaking in Ankara on Wednesday, Union of Turkish Construction Industry Employers’ Union (İNTES) President Şükrü Koçoğlu said they “have to find an addressee with whom to discuss the future of Turkish projects in the country.”
source: todays zaman

Libya rush should start urgently, minister says

meb — Thu, 03 Nov 2011 09:07:41 +0000

Turkish construction companies should rush back to Libya, their one-time top market, as the government is ready to support them, according to Economy Minister Zafer Çağlayan.

“Our businessmen demand a special customs permit to take their machinery and equipment to Libya,” the minister said during a press meeting yesterday in Tripoli with his Libyan counterpart.

A business assembly of 200 people accompanied the minister during the one-day visit.

Turkish companies undertook $7.627 billion worth of projects in Libya in 2009 and 2010, according to official data.

Upon Turkish Prime Minister’s order, Turkey will build schools, mosques, police stations, courts and jails in Libya, the minister said.

Turkish contractors will start building these facilities for free once the Libyan authorities finalize determining their needs, he said.

The ministry runs a budget of $50 million to support consultancy practices for Turkish companies worldwide, Çağlayan said, adding that Turkey will pay up to $300,000 per project in Libya within the scope of this fund, calling it a gesture. “Libyan authorities will not pay for it.” he said.

Turkey will work on using this fund mostly in Libya.

Turkey has always been on Libya’s side and this is where the country diverges from other countries eyeing businesses there, according to Çağlayan.

“The countries that colonized Africa are today trying to achieve a role,” he said, without naming specific countries.

These countries are thinking of “how to exploit the resources there” once again, he added.

Abdullah Shamia, the economy minister of the National Transitional Council (NTC) in Tripoli, said Libya had a lot to learn from Turkey’s experiences. Turkey backed Libya during the transition period, Shamia said.

“We have overcome our cash problem due to Turkey’s support,” he said.

Turkey’s trade deficit widens to record highs

meb — Thu, 03 Nov 2011 09:05:17 +0000

Turkey’s trade deficit widened to a record level in September compared with last year, official figures published yesterday show.

Skyrocketing current trade deficit and a low domestic savings ratio in the growing economy raise concerns about the country’s dependency on import products and booming demand, according to professionals.

The trade deficit was $10.4 billion in September, the biggest gap recorded, compared with $6.7 billion on September last year and $8.2 billion the previous month, according to figures published by Turkey’s Statistical Institute (TÜİK). Measures taken by Turkey’s Central Bank have thus failed to reduce the trade gap in September, an economist told the Hürriyet Daily News.

Turkey might have already experienced the “peak” in its trade deficit by last month, and it might take a few months for the Central Bank’s steps to show their effect on the economy, Erol Katıcıoğlu, a professor at Istanbul Bilgi University, told the Daily News yesterday.

“Still, the Bank might be pushing the envelope regarding its moves between restrictive and expansionary monetary policies, he added.

More expensive imports

The Turkish Lira’s recent depreciation “might be seen as [a chance] to put the brake on booming consumption and imports in Turkey,” said Katırcıoğlu, adding that imports had not slowed down, although they have become more expensive, with the lira’s depreciation.

The trade gap grew faster than expected by markets, which estimated the deficit to be around $8.5 billion in September, mainly due to a considerable rise in imports, whichtotaled $21 billion in September – $2 billion higher than the markets’ expectation – thus marking an increase of 35 percent compared to the same month last year. Meanwhile, exports accrued in line with expectations at $10.8 billion. The gap for the first nine months of 2011 was $82 billion.

“It is obvious that the annual trade deficit will be way beyond expectations,” said Erdal Sağlam, an Istanbul-based economist.

Demand has not been reduced yet in line with expectations from the economy administration, he said, adding that low saving ratios in a country with strong demand could trigger further problems down the line.

“We expect to see an economic slowdown starting from November thanks to the Central Bank’s new policy that employs the interest rate corridor to increase overall interest rates in the economy,” he said in a statement emailed yesterday.

Domestic savings

Structural problems are still preventing Turkey from forging a sustainable economy, said Erdoğan Alkin, a Daily News columnist. The savings ratio problem still remains a key issue ahead of the country, mainly stemming from income injustice and a failing tax policy, he said. The ratio of domestic saving to gross domestic product in Turkey is currently at record-low levels and is expected to go down to 12 percent by yearend, compared to 12.6 pct it was in 2010.
source: hurriyet daily news

US brand to send sexy shop assistants to Turkey

meb — Fri, 15 Apr 2011 07:47:48 +0000

The U.S.-based Abercrombie&Fitch, a clothing retailer known for having half-naked male shop assistants greet customers at the door of its New York City branch, and its subsidiary Hollister are looking for the right place to open their first store in Istanbul.

The two brands are searching to secure space at İstinye Park, a stylish shopping mall in the city’s Maslak district.

The brands aim to open their first store after the end of 2012, Hakan Kurt, the general manager of the mall, said Tuesday at a retailers’ award ceremony in Istanbul.

“Still, we face some difficulties to create free space in the mall. Our only hope is turn over of some current renters,” he said.

The famous textile brand H&M opened its second store in Turkey in İstinye Park earlier this month.

The company runs stores in the United States, Japan, England, Denmark and Italy.

Abercrombie&Fitch is among the mostly imitated fashion brands in Turkey.

Arbil closer than ever to Turkey

meb — Fri, 15 Apr 2011 07:31:33 +0000

Turkish Airlines has launched direct Istanbul-Arbil flights, the latest sign of the developing relations between Turkey and the Regional Kurdish Administration in northern Iraq. Turkish Finance Minister Mehmet Şimşek welcomed Iraqi Kurds at a ceremony in Arbil, saying in Kurdish, ‘We have been brothers for a thousand years. No one can destroy this!

Northern Iraq, on what was once one of the most disputed Turkish borders, is closer to Turkey than ever in both economic and political terms. Speaking in Kurdish during a visit Thursday, the Turkish finance minister reiterated the ruling government’s support fro the Iraqi Kurdish region.

Turkey’s national air carrier’s launch of direct flights to Arbil, an Iraqi Kurdish city, on Thursday, added to close political ties between the parties that were cemented by recent visits from Turkish Prime Minister Recep Tayyip Erdoğan and Foreign Minister Ahmet Davutoğlu to the region.

Turkish Finance Minister Mehmet Şimşek’s opening speech marked the ceremony in Arbil to celebrate the new line between Turkey and the city.

“I have brought you our prime minister’s greetings,” Şimşek said in Kurdish. “Is it crucial for us for here to develop and live in peace.”

Until a few years ago, it was unthinkable for a Turkish minister to speak in Kurdish in an official capacity.

Şimşek spoke at the Arbil International Airport, a facility built by Turkish Cengiz Construction and opened by Erdoğan two weeks ago. “In recent years, we have been developing our relations with neighboring countries based on a policy of zero-problem and through strong cooperation as well as more investments. Turkish Airlines’ flights to Arbil are a physical manifestation of the existing ties between the hearts of the Turks and Iraqis. Hopefully, flights will make great contributions to trade, investment and cooperation between our peoples.”

Ending his words in Kurdish, Şimşek said, “We have been brothers for a thousand years. No one can destroy this brotherhood.”

Erdoğan, accompanied by several Cabinet ministers, visited Arbil earlier in March, where he met with Masoud Barzani, the head of the Regional Kurdish Administration, and became the first Turkish prime minister to visit the city.

In November, Davutoğlu visited the city in a bid to support the efforts to found a government in Iraq.

Undersecretary of the Turkish Ministry of Energy and Natural Resources Metin Kılcı, Turkish Airlines Chairman Hamdi Topçu and a group of Turkish businesspeople were on the very first Turkish Airlines plane to Arbil.

Under the flight schedule, Turkish Airlines, also known as THY, will fly from Istanbul to Arbil on Tuesday and Saturday and from Erbil to Istanbul on Wednesday and Sunday.
source: hurriyet

Turkish February current account gap widens to $6.1 billion

meb — Mon, 11 Apr 2011 22:04:07 +0000

Turkey’s current-account deficit more than doubled in February over a year earlier, the 14th consecutive widening in a measure the Central Bank says it is trying to contain.

The deficit rose from $2.7 billion to $6.1 billion in the same month of 2010, the Central Bank in Ankara said Monday on its website. The median forecast in a Bloomberg survey of nine economists was for a gap of $6.3 billion.

The cumulative deficit for the 12 months through February was $54.8 billion, or about 7 percent of estimated gross domestic product. The government’s medium-term plans forecast a gap of $42.2 billion, or 5.4 percent of GDP.

Restraining the current-account gap is the bank’s main policy priority, Erdem Başçı, a deputy governor of the Central Bank, said March 29. The bank has cut interest rates by 75 basis points since December to help slow capital inflows, while increasing reserve requirements to cap growth in loans. It had forecast that those increases would take effect in the current quarter of the year.

Net foreign direct investment was $497 million in February, bringing the total for the year to $1 billion, compared with $973 million in the same period of 2010, the bank said. Foreign investors bought a net $1.8 billion in Turkish government bonds in February and sold $554 million in shares, it said.

Exports rose 22 percent in February to $10.1 billion, while imports surged 49 percent to $17.5 billion, the statistics office said March 31.

The bank recorded $3.3 billion in inflows in the net errors and omissions section of Monday’s data release.

Call for conscious

Commenting on the recent figures, Rızanur Meral, chairman of the Confederation of Businessmen and Industrialists of Turkey, or TUSKON, told Anatolia news agency that the rise of the current account deficit could not be prevented through bureaucratic cautions and laws.

“All of society should be more conscious about the situation,” said Meral.

Tanıl Küçük, chairman of Istanbul Chamber of Commerce, or ICOC, told Anatolia that Turkey had to reconsider its growth model. Küçük said the country was likely to exceed the estimated total volume of the current account deficit of $42 billion by the end of the year.

“We become one of the top performing countries in growth rate by the end of last year but no other country has had [a larger] account deficit among the top growing economies like us,” he said.

“The policy of slowing down the domestic economy by narrowing down the credit volume in order to challenge the high deficit now brings more questions to mind,” said Çetin Osman, chairman of Adana Trade Chamber. “The recent figures indicate that most of the domestic demands have been met through increasing imports.”

Turkish Lira strengthens

The Turkish Lira appreciated for a fifth day against the dollar after the Central Bank’s report reflected an increase in capital inflows.

Turkey’s currency strengthened 0.2 percent to 1.508 per dollar at 11:23 a.m., heading for its strongest closing in four months.

“The market saw the current-account data positively,” Cem Tözge, fund manager at Ata Yatirim Menkul Değerler, told Bloomberg. “The figure was very close to expectations but the absence of a negative surprise caused the dollar-lira to go below 1.51. The net errors and omissions show that hot money continues to park in Turkey.”

Turkey’s currency has rallied 5.7 percent versus the dollar in the past month, the third-best performance of more than 20 emerging markets tracked by Bloomberg, benefiting from the so-called carry trade, in which investors buy currencies of countries with low rates and invest in the assets of nations with higher yields.
source: hurriyet daily news

Turkey to grow by 4.6 percent this year, IMF report says

meb — Mon, 11 Apr 2011 22:00:55 +0000

Turkey’s gross domestic product, which grew 8.2 percent in 2010, is expected to register a 4.6 percent growth rate this year, according to a recent report from the International Monetary Fund, or IMF.

The 2011 World Economic Outlook report of the IMF read that the global economy will grow by 4.4 percent this year and by 4.5 percent in 2012. IMF published the first and second parts of the report Monday.

The economic outlook report expects Turkey’s GDP to grow by 4.6 percent this year and 4.5 percent in 2012. Rapid economic recovery in Turkey is forecasted to continue according to the economic outlook report of the IMF. The consumer price index, which grew by 8.6 percent in annual basis last year, is expected to show a 5.7 percent increase in 2011 and 6 percent in 2012.

According to the IMF report, while Turkey’s proportion of current account balance to GDP was minus 6.5 percent, this ratio is forecasted to be minus 8 percent in 2011 and minus 8.2 percent in 2012. The IMF report predicts Turkey’s unemployment rate, which was 11.9 percent last year, to be 11.4 percent in 2011 and 11 percent in 2012.

The report highlighted that even though the economic growth follows a low level in developed economies, unemployment rates remain high. However in developing economies, there seems to be a strong growth rate and low unemployment rate, the report read.

In developed economies the annual economic growth rate is expected to be 2.4 percent this year and 2.6 percent in 2012. In the developing countries, this figure is expected to be 6.5 percent.
source:hurriyet daily news

‘I would make equity investments in the Turkish economy’

meb — Mon, 19 Oct 2009 13:16:08 +0000

The Turkish economy has registered superb improvement in competitiveness in recent years and proven its potential as a magnet for international investors, world-renowned strategist Professor Michael Porter has said. Addressing a group of businessmen and reporters on Saturday at a conference organized by İşTcell, a Turkcell brand directed at corporate customers, Porter, director of Harvard Business School’s Institute for Strategy and Competitiveness, said that if Turkey were traded on the stock market, he would definitely make an equity investment in the country.

During the first part of his speech, Porter described the major premises of creating strategies and determining and developing a competitive approach and the role of leaders in the competitiveness of a company. He also shared his views on possible strategies that may be adopted during times of economic crisis. He devoted the second part of his speech to discussing Turkey’s economic strategies, including an in-depth analysis of the business world’s role in these strategies.

Porter later announced the results of a study conducted by the Harvard Business School and Turkcell on Turkey’s competitiveness in the global economy. The study found that the Turkish economy has competitive advantages such as a vast labor force, a high level of entrepreneurship, a rich and dynamic internal market, vast land and a favorable geographic location. Easy access to a range of global markets and better established institutions compared to other emerging economies are two other assets that give Turkey an edge, Porter noted.

He proposed that the Turkish private sector take the initiative in establishing national and regional competition councils. This will help the formation of a consensus on the economic strategy of the country as a whole, he argued. Porter also advised supporting efforts to create industrial clusters in different regions since the Turkish economy is already prone to organizing into such clusters. Porter also encouraged developing more sound coordination in economic relations with neighboring countries to fully exploit the potential that Turkey’s geographic location provides.
source: Today’s Zaman

Crisis recovery budget drafted without reference to IMF deal

meb — Mon, 19 Oct 2009 13:13:06 +0000

The central administration budget for 2010, which focuses on overcoming the economic crisis, was submitted for Parliament’s approval on Saturday and includes no specific reference to a potential stand-by deal with the International Monetary Fund (IMF).

Disclosing the details of the new budget at a press conference on Saturday, Finance Minister Mehmet Şimşek said Turkey had prepared its budget while taking into consideration its own needs and the conditions arising from the economic crisis, underlining that talks with the IMF would “proceed on the premises set out in the budget.”

The size of the 2010 budget is TL 286.93 billion. It includes a 5.06 percent wage increase for civil servants, in two equal semiannual installments of 2.5 percent. With expected revenue of TL 236.8 billion, the deficit will be approximately TL 50 billion.

According to experts, Finance Ministry bureaucrats maintained caution while drafting the budget. The economic gloom in Turkey will persist next year, and the government will stick to its policy of fiscal discipline, they note.

The minister stated in his comments that the General Directorate for Budget and Finance remained committed to the primary target of leading Turkey out of the crisis while working on the budget.

“We will clench our teeth to maintain fiscal discipline,” he said, adding that the government is planning neither to introduce any new taxes nor abolish existing ones.

The draft budget states that public investments will amount to TL 22.3 billion, and energy will enjoy the lion’s share of total investment. The second most favored sector in terms of its share in investment will be transportation. The government is planning to allocate a total of TL 1.5 billion to these two areas.

The Finance Ministry used the policies and figures proposed in the middle-term financial plan as a basis while preparing the new budget. The directorate tasked with drafting the budget also took requests from all ministries and other state institutions into consideration when trying to balance revenue with expenditure.

Şimşek said officials estimated that gross domestic product (GDP) would be TL 1.03 trillion for the year ahead while crafting the budget. Their prediction for GDP growth was 3.5 percent. Ministry bureaucrats anticipate a consumer price index (CPI) of 5.3 percent, $108 billion worth of exports and $153 billion in imports. The minister described their predictions for these major macroeconomic indicators as “quite realistic.” The minister said the projected revenue was raised and expenditures lowered from what they were in the 2009 budget in an attempt to reduce the budget deficit.

In the revised budget for this year, expenditures are estimated to hit TL 266.75 billion and revenue TL 203.93 billion, which means a deficit of TL 62.82 billion. This is a large jump of TL 52.4 billion over the original expectation for the 2009 budget. Şimşek said TL 44.8 billion of this extra deficit stemmed from a sharp fall in revenue amid falling economic activity during the worst crisis since the Great Depression. Only TL 7.6 billion resulted from an increase in expenditures, he added. According to the draft budget, transfers to social security institutions will rise 7.3 percent over this year in 2010 and will reach TL 57.7 billion. The government will transfer TL 31.8 billion to the Social Security Institution (SGK) alone in terms of deficit financing.

The budget envisages allocating TL 8.4 billion to agriculture, and of this amount, TL 5.6 billion will be in subsidies.

The share of revenue coming from local administrations was raised by 17.6 percent to TL 19.1 billion. Including all transfers, the budget envisages allocating a total of TL 22.1 billion to local administrations next year.

According to the draft budget, TL 525 million will be spent on the Village Infrastructure Support Projects (KÖYDES). The allocation for the Scientific and Technological Research Council of Turkey (TÜBİTAK) saw an incremental rise to reach TL 625 million.

The minister vowed that the government would do everything necessary to protect low-income earners, with proper wage increases for civil servants, retirees and workers.

Like previous budgets, the 2010 budget allocates the largest share of funds to education, as the Education Ministry’s annual budget once again surpasses all others, including the projected amount for defense expenditures.

The Health Ministry’s budget was increased by 12 percent. A Health Ministry project that promotes primary health care and facilitates visits to family practitioners rather than state hospitals, currently being tried in several pilot districts, will be extended to cover all 81 provinces.

The state will exclude health expenditures from the main budget for the first time next year, with the exception of parliamentary deputies and their dependents, soldiers, indigents holding green cards and prisoners. Expenditures for treatment and drug expenses will be transferred to the SGK, and the state will allocate a certain amount of funding to the SGK every year. Next year health services for civil servants will also be handled by the SGK.

Scholarships for students will increase 13.8 percent, while the allocation for distributing free textbooks to students has been increased by 6.4 percent.
source: Today’s Zaman

IMF chief: Growth of Turkish economy could exceed expectations

meb — Mon, 05 Oct 2009 11:57:15 +0000

If Turkey continues to pursue sound economic policies, its economy could perform better than current estimates, International Monetary Fund (IMF) Managing Director Dominique Strauss-Kahn said on Sunday.

Strauss-Kahn, who is currently in İstanbul to attend the 2009 Annual Meetings of the World Bank Group and the International Monetary Fund, noted that he expected the Turkish economy to recover rapidly from the ongoing global economic crisis, saying that the Turkish economy has made great progress thanks to reforms previously implemented in the financial sector. As a member of the G-20, which forms the backbone of the global economy, he said, Turkey is not only one of the leading economies of the world, but also a dynamic member of the IMF.

According to the fund’s latest World Economic Outlook, released last week, Turkey’s economy is expected to grow 3.7 percent in 2010, after a global recession caused the country’s economy to contract an estimated 6.5 percent this year. The inflation rate in the country is expected to stand at 6.2 percent this year before increasing to 6.8 percent in 2010. The report estimated that Turkey’s current account deficit to gross domestic product (GDP) ratio would increase from 1.9 percent this year to 3.7 percent in 2010. Furthermore, Turkey’s quota in the IMF is expected to increase to more than 1 percent. Analysts note that the Turkish economy will be the fastest growing in Europe in 2010.

Speaking at a conference yesterday on the sidelines of the IMF-World Bank meetings, Professor Nouriel Roubini, a well-known economist, said macroeconomic and financial indicators show that the Turkish economy has been strong in the face of the crisis. He stated that a deal with the IMF would benefit Turkey in terms of the psychological influence it would have on investors and the market, even though there is no technical necessity for such a deal. Meanwhile multibillionaire investor George Soros stated that investments should continue in order to encourage recovery from the crisis.
source: Todays Zaman

Roubini advises IMF deal for Turkey

meb — Mon, 05 Oct 2009 11:48:06 +0000

Turkey does not ‘technically’ need a standby agreement with the International Monetary Fund, according to Professor Nouriel Roubini, who was among the first to predict the current global crisis. But, he says, a deal would give confidence to investors. ‘Instead of just waiting for a recovery in the European Union, Turkey should also diversify its export markets,’ he says

The collapse in European Union demand coupled with receding foreign capital inflows makes a standby agreement with the International Monetary Fund desirable for Turkey, according to New York University Professor Nouriel Roubini.

Roubini, who predicted the crippling financial crisis as early as 2006, told a crowded audience in Istanbul that a global recovery will probably be U-shaped – slow and with low growth rates for years. Speaking at an İş Investment-sponsored event Friday evening, the economist, dubbed “Dr. Doom,” said unprecedented central bank interventions helped mitigate the “systemic risk” to the world economy but that downside risks remain.

“The Turkish economy was fundamentally sound in the eve of the crisis,” he said. “But then the contagion came, resulting in a collapse in European Union demand [for Turkish goods]. The corporate sector halted capital expenditure investments. Turkey is a very open economy and its recovery depends on the recovery of the eurozone.”

Despite this, Turkey should continue macro-structural reforms and “go back to a sound fiscal framework,” Roubini said, adding that there might be some questions about whether the government’s recently announced medium-term economic program would be enough.

Under these circumstances, a deal with the IMF would be “positive for investor sentiment,” he said. “Technically, there is no need for such a deal. But it would signal that a robust policy is in place.”

The structural reforms Roubini advocated included reducing taxes, reigning in the unregistered economy, providing labor flexibility and reforming the social security system. “Your recovery demands on two things,” he said. “Sound domestic policy and good luck.”

Instead of just waiting for a eurozone recovery, Turkey should diversify its exports and head toward the markets in the Middle East, Central Asia and north Africa, Roubini added. “I am moderately optimistic on Turkey,” he said.

Shape of the recovery

Reflecting on the U.S. economy, the Istanbul-born economist predicted a U-shaped recovery. A double-dip recession, namely a W-shaped one, is “not my main scenario, but downside risks to that end remain,” he said. If the recovery would be “anemic,” the losses stemming from commercial real estate, credit cards, auto loans and student loans would be much higher than the $3.4 trillion predicted recently by the IMF, he said.

An exit from the current stimulus policy would be “very difficult,” as the massive rally in all asset classes since March clouds predictions, according to the renowned professor. “How much of this [rally] is driven by fundamentals and how much of it comes from [excessive] liquidity?” he asked, recalling that the fiscal easing by policy makers amounts to a massive $10 trillion. “Japan exited too soon in 1998 and had a double-dip recession.”

The current rally might end in a “correction,” he said. “Assuming a weak recovery, flow of macroeconomic news would be worse than expected. In U-shaped recoveries, surprises are negative rather than positive.”

Weak consumer demand

Recalling that official unemployment in the U.S. has reached 9.8 percent while real unemployment is at 16.8 percent, Roubini said this is a key reason why growth would be “well below potential” for the next few years. It is not only job losses that slash consuming power of U.S. citizens, he said, recalling cuts in wages and hours worked in many workplaces.

Roubini named other reasons for anemic growth as weakness in credit growth, the painful debt structuring in the corporate sector that hampers expansion, a large budget deficit that would hit private demand and a large current account deficit.

“Places such as the U.S., Britain, the Baltics and Dubai ran large current account deficits,” he said. “While countries such as Japan, Germany and China ran large current account surpluses. China was the producer of last resort while the U.S. was the consumer of last resort. The glut of capacity in the U.S. economy and weak demand will also result in a fall in global aggregate demand.”

Roubini was more bullish on emerging markets. “They don’t have financial leverage and liabilities,” he said. “They have cleaned up their financial systems [before]. Their potential growth rate is much higher, and they will recover at a reasonable rate next year.”

But these are not “engines of global growth,” he added. “China’s total gross domestic product is at $3 trillion, a fifth of the U.S. GDP. A total of 2.2 billion ‘Chindian’ citizens spend $1.6 trillion annually, while 300 million U.S. citizens spend $10 trillion.”
source: Hurriyet daily news

Minister unveils plan to turn Istanbul into global finance center

meb — Mon, 05 Oct 2009 11:42:29 +0000

Discussed for months but never detailed, key points of a government plan to turn Istanbul into a global financial center were finally revealed by a top minister on Friday.

Speaking at a press conference organized as part of the International Monetary Fund-World Bank annual meetings, Deputy Prime Minister Ali Babacan said Istanbul would soon become “a significant and prominent financial center.” Babacan tied the effort to the “void” created by the global financial crisis.

“Istanbul is the natural finance center of Turkey,” he told journalists. “We need to increase its competitive power regionally and globally. The competitive strength of our economy is very important.”

The project “Istanbul International Financial Center,” or IFC Istanbul, is included in the ninth development plan covering 2007-2013.

“In this action plan, in order to have Istanbul as a global finance center, priorities have been determined to build a legal infrastructure that operates on international standards, to increase diversity of financial products and services and to develop a simple and effective system,” said Babacan. “We need to enhance our legal infrastructure.”

“In the effort to turn Istanbul into such a center, it is necessary to improve the legal aspect, which would bring expeditious and effective resolutions of disputes in the area of finance, to establish an institutional arbitration center and to accelerate legislation of laws that would contribute to the IFC-Istanbul Project,” the minister said.

One priority is to increase the diversity of financial products and services, according to Babacan. “A global finance center should have diversity in the products and services it offers and the conditions of such offers should be attractive,” he said.

Noting that building a simple and effective tax system is also a priority, Babacan said tax laws and related legislation will be made “simple, clear, predictable and sustainable.”

Reforming taxation would help the inflow of financial transactions into Istanbul and Turkey, the minister said. “We should also consider improving the regulatory and supervisory framework.”

“The current global crisis once more demonstrated the importance of coordination among regulatory authorities of countries,” Babacan said. “On the other hand, we can say that Turkey has proved itself with its strong financial and banking system. Turkey sets an example for other countries.”

Enhancing physical infrastructure is another priority for the IFC-Istanbul project. “We are targeting to develop every part of the city in terms of standards and technology,” said Babacan. “We are also working to create new software for markets and a technology platform to serve as a communication center.”

Babacan mentioned that the IFC is a long-term plan. “The IFC-Istanbul project will not only focus on a specific site. In fact, all operations across Istanbul to enhance residential areas, security and transportation, shall support the IFC,” he said. “We will focus on developing human resources and the image of Istanbul. As you all know, Turkey is very strong on human resources.”

The government has created nine working groups for the project, he said.

Responding to a question on the perceived “unease” of the government about the independence of the Central Bank, Babacan said the government was not questioning the status of the bank.
source: Hurriyet daily news