Erdogan reconsiders mega-projects as economy stutters

Erdogan reconsiders mega-projects as economy stutters

Recep Tayyip Erdogan is rethinking some of his beloved mega-projects as Turkey struggles to fend off an economic crisis.

The Turkish president said on Friday he would “review” existing investment plans although the government would complete projects that were almost built.

“We are not considering brand new investments,” he told a meeting of officials from his ruling AKP party.

A surprise decision by Turkey’s central bank to raise interest rates to 24 per cent was heralded by investors as an important step towards taming runaway inflation and propping up the struggling lira. But analysts warned that monetary policy must be supported by a plan to rein in government spending to restore international confidence.

Economists say that fiscal discipline, long viewed as an important achievement of Mr Erdogan’s governments, has slipped in recent years. They argue that a stimulus programme designed to bolster the economy after a violent attempted coup in 2016 — combined with a growing number of government-backed infrastructure projects and generous pre-election giveaways — not only damaged budget discipline but also fuelled a current account deficit and stoked inflation that last month hit 18 per cent.

Berat Albayrak, Turkey’s finance minister, has said that fiscal discipline will be one of his priorities. Next Thursday, Mr Albayrak will unveil a three-year economic programme that is expected to outline details of how he will meet his target of a budget deficit of less than 2 per cent of gross domestic product this year and 1.5 per cent in 2019. Last year’s figure was 1.5 per cent, but some economists fear that the targets are ambitious against the backdrop of a looming recession.

Cutbacks would be painful for Mr Erdogan, who frequently speaks proudly of having transformed Turkey’s infrastructure over his decade and a half at the helm. During his campaign for re-election in June, he promised a spate of projects to celebrate the centenary of the republic in 2023.

But the IMF has warned that the private-public partnerships that the government has used to build new hospitals, bridges and other developments have entailed a growing cost to the public purse. It has urged a “strict selection” of such projects.

In his speech on Friday, the president did not say which investments would be delayed or cut. Only last month, he vowed that a $13bn plan to build a canal through Istanbul that he had previously described as “crazy” would “definitely” go ahead.

Analysts say that a firm commitment to limit infrastructure spending would be a welcome reassurance from a president who has repeatedly insisted that the plunging lira, which has lost 40 per cent of its value against the dollar this year, is the result of a foreign operation and has no relation to the health of the economy.

Phoenix Kalen, director of emerging market strategy at the French bank Société Générale, said it would be an important step towards restoring investor confidence.

“It would be a very strong signal to the markets about Erdogan’s pragmatism and his willingness to compromise on some of his mega-projects,” she said. “It would signal a move towards more orthodox economic policy and provide leeway for the finance minister to execute his medium-term plan.”

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