Turkey postpones fiscal reforms, may tweak goals

Turkey has delayed implementation of fiscal reforms and may loosen their parameters, its industry minister said, potentially putting at risk medium-term goals for cutting its budget deficit and public debt.
Targets for economic growth of 5% of GDP and a 1% budget deficit within 10 years were liable to change, Nihat Ergun was reported as saying by broadcaster CNBC-e on Wednesday.
The lira currency and Turkish bond weakened against the dollar following the report, which analysts said signalled loosening fiscal discipline ahead of general elections in July 2011.
The legislation, passage of which some ratings agencies have highlighted as a potential reason for upgrading Turkey's sovereign credit rating to investment grade, had been due for presentation to parliament later this year.
Government sources told Reuters that Turkey may delay implementation of the law to 2012. The government failed to pass the bill through parliament before the start of summer recess on July 22.
The legislation also envisaged reducing public debt to about 30% of GDP in five to 10 years.
Ergun's ministry was not immediately available for comment, nor were officials from the Finance or Economy ministries.
"These remarks are important as they demonstrate clearly that the fiscal rule does not have wholehearted backing of the government, and this lack of full commitment is obviously worrying for the prospects of approval and eventual implementation of the rule," said economist Inan Demir or Finansbank Research.
Some government ministers are seeking to raise a budget deficit/gross domestic product ratio of 1% under the fiscal rule to 3%, as set by the European Union's Maastricht criteria, sources said.
"This rate (budget deficit/GDP ratio) could be 2% or the EU goal of 3% and this would be a more appropriate step in terms of contributing to growth. The requests are mainly for 3 percent," said a senior official.
"As well as some ministries, there are officials in the AK Party who take this view," he said, adding the final decision was Prime Minister Tayyip Erdogan's.
The funds that would emerge from a looser budget deficit goal could be used for financing a faster economic growth, said the same sources.
In pre-open trade the benchmark bond yield stood at 8.45%, up from a previous close of 8.33 percent, and the lira currency eased to 1.5020 against the dollar from the previous day's closing level of 1.4980.