The IMF (International Monetary Fund) is unhappy with the six-month performance of Turkey's economic package, and the government looking for ways to put the brake on soaring imports. Raising taxes on consumer loans could slow down bank lending, but bankers say selective taxation would be more reasonable.
Analysts have been warning the government against doing anything that would diminish the competitiveness of the banking sector and urging it to take more selective fiscal measures, such as taxes on luxury goods - a policy also under consideration.
The government is reviewing a set of options to cool economic growth, say experts. This is seen as likely to exceed a government target of 5.5 percent this year.
A fast-track economic recovery from last year's slump is also being accompanied by a significant deterioration in Turkey's current account balance and by unwanted inflationary pressures.
IMF Turkey desk chief Carlo Cottarelli has also urged the government to fine tune the economy and decide on such measures at once.
A measure that has been considered to slash the considerable pickup in consumption was to boost the cost of consumer loans, which have been increasing at a record pace since the beginning of the year.
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It is wrongheaded to allow a rise in interest rates, because it would increase the risk premium the treasury pays for its debt and widen the positions the Central Bank and the IMF have been urging should be closed," said Tunc Erdal, senior fund manager with Alternatif Bank. "We know how well the treasury and the budget have benefited from falling interest rates."
Officials have said that TL 7 quadrillion in savings have been generated in the 2001 budget through interest rates that took a plunge early in the year. (US$1=666,666 TL) "By spreading the word and delaying the actual announcement until now the authorities caused a few percentage points' rise in interest rates," Erdal added.
Finansbank's Ali Ozenc said that raising the tax on consumer loans could serve as a deterrent on consumer loans temporarily, because the government would later on slash it in order to sustain growth.
Ozenc said a few percentage points would only slightly increase the cost of consumer loans on an annualized basis. Thus a substantial increase is needed to deter consumption.
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Nowhere in the world is there such a policy of raising and cutting taxes so frequently," Ozenc said. "If a tax is imposed it should remain. After all the economy could begin to cool off by itself, because soon there will be no need for more stockpiling, which has fueled imports so far."
Ozenc suggested that raising the value-added tax on luxury goods such as imported cars would make more sense and that such taxes could even endure. "It would also fit in with social democracy," he commented.
He warned that banks would opt not to collect deposits by slashing deposit rates if they are unable find clients to lend to at high rates, which would hurt the competitiveness of the already small sector.
Economist Bulent Uygun stated that the government had reached a hasty decision and said that the increase in demand was a matter of perception. Uygun said: "With the start of the stability program, interest rates for deposit accounts and for government shares started to fall, but consumer credits did not follow."
In fact, Uygun said, interest rates for consumer credits are quite high, yet different perceptions among consumers spurred demand.
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Consumers compared interest rates not with figures for deposit accounts but with past consumer credit rates and started using them because they appeared to be cheap. The problem stems from the government's lack of foresight regarding the behavior of single households."
Uygun said the situation could be overcome without panicking. "In any case, there has been a slowdown in demand in the cars and household appliances sector, a trend which we expect to sharpen. But the government acted in haste. While this kind of decision was part of the stability program, we seem to have missed the mark. The government would have done better to increase the value-added tax on luxury consumption goods."
Professor Turker Minibas said the government's decision was delayed and interpreted it as favorable for banks. Minibas stated that the government had had to control demand because it could not pull down imports and expressed belief that the decision would contribute to a fall in inflation. – (Albawaba-MEBG)
© 2000 Mena Report (www.menareport.com)
