PRAGUE Improved earnings from tourism and purchases by visitors from the former Soviet Union, known as "Suitcase Trade", may help Ankara narrow a ballooning current account deficit, a senior cabinet member said on Tuesday.
Officials expect the current account deficit to reach four percent of gross national product, far above an official estimate of 1.8 percent made at the start of the year when Turkey launched its IMF-backed disinflation program.
"It is normal to face such a wide deficit in countries implementing economic programmes based on exchange rates," Economy Minister Recep Onal told Reuters in an interview in Prague where he is attending the IMF-World Bank annual meetings.
Turkey will allow a basket of one dollar and 0.77 lira to appreciate 20 percent the target for wholesale price inflation against the lira this year.
But inflation has been above the target, creating a real appreciation of the lira and increasing pressure on exports.
"Last year and the year before last year were not good in tourism.
But ... we expect a significant contribution from tourism this year," he said.
Two major earthquakes which killed some 20,000 people and bomb attacks by Kurdish rebels hit Turkey's tourist industry last year. But arrivals rose 37 percent in the first seven months of 2000 as rebel attacks and the effects of the quakes faded.
Turkey expects to earn $10 billion from tourism in 2000, up from $5.5 billion in 1999. The country recorded tourist arrivals of 9.5 million and revenues of $8 billion in 1998.
Economists expect end-2000 wholesale inflation to be around 30 percent.
The appreciation, matched by a surge in domestic demand, partly sparked by lower interest rates, boosts imports.
"There's also a recovery in Suitcase Trade in line with the growth in the purchasing power of people in the former Eastern Bloc," Onal said. "There may also be an improvement in some invisible items. For this reason, we don't think the current account deficit will stand at worrying levels at year's end." Although Turkish officials say a deficit of around 3.5 to four percent of GNP is sustainable, the country moved this month to curb domestic demand, seen as a major factor behind the widening current account deficit.
Turkey raised a charge on consumer loans and value added tax rates on car sales.
Onal said other measures were in preparation as part of Turkey's 2001 budget. He gave no details.
"There will not be any surprise. Every measure will be a part of the 2001 budget to be announced in mid-October." Onal partly blamed the rise in gasoline prices and the euro's weakness against the dollar for the current account deficit.
Turkey imports almost 90 percent of its oil consumption. The country's exports are mainly in dollars and imports are in euro zone currencies.
A weak euro can also eat into revenue from tourists, most of whom are from European Union countries.
"The only deficiency of our program is the lack of enough foreign capital inflow. There are commitments in terms of portfolio and foreign direct investment, but we haven't reached desired figures in actual terms," he said.
Onal and many economists think the program has been a success on the fiscal side which is key to the target of lowering inflation to single digits at the end of 2002.
"We plan to further increase our primary budget surplus next year," Onal said.
"We plan no increase in real terms in budgetary expenditures next year compared to 2000." After producing a minor primary surplus in 1999, Turkey expects a surplus of around four percent of GNP this year. Its target is to raise the figure to 5.3 percent in 2001 and 5.6 percent in 2002. a sharp fall in domestic interest rates helped the treasury reduce its interest burden for this year and 2001.
(Reuter)