Turkey beats IMF-backed inflation target for 2004

01-03-2005, 19h15

ANKARA (AFP) - Turkey said inflation in 2004 had been 9.32 percent, well below the 12 percent year-end target set in a strict IMF-backed economic recovery programme and underscoring the country's hard-fought battle against decades of high prices. Cutting chronic inflation is a key element in a 16-billion-dollar stand-by deal Turkey signed with the International Monetary Fund (IMF) after a severe financial crisis in 2001 plunged the country into its worst recession since World War II. The programme is set to expire in February, becoming the first stand-by deal Turkey has completed after failing on 17 other occasions. Last month Turkey and the IMF agreed on a new three-year arrangement worth 10 billion dollars (7.4 billion euros) to bolster economic recovery. Turkey's inflation was nearly 70 percent when it began implementing the reforms demanded by the IMF. But in what has so far been deemed a success story, the rate was brought down to single digits in June last year for the first time in decades and firmly kept there. The state statistics institute announced that consumer prices rose 0.45 percent in December from the previous month, bringing inflation to 9.32 percent in the past 12 months. Wholesale prices increased by 0.13 percent in December compared to November -- up 13.84 percent over the past 12 months. "We have succeeded in achieving single digits in consumer prices after decades. These figures are historic indicators for the Turkish economy," Economy Minister Ali Babacan said. Both the yearly and monthly increases were well below expectations established in a survey of some 70 economists, bankers and business leaders carried out by the central bank last month. The interviewees predicted that consumer prices would increase by an average of 1.1 percent in December from November, bringing year-end inflation to an average of 10 percent. This was the third time in a row that Turkey has beaten its annual inflation projection. In 2002, the country brought inflation down to 29.7 percent from 68.5 percent in 2001, beating its year-end target of 35 percent. Last year, inflation was cut to 18.4 percent, below the year-end target of 20 percent. Buoyed by the progress, the government launched a major money reform on January 1, slashing six zeroes off its hyperinflated currency and introducing the New Turkish Lira or YTL as it is called here. The reform saved Turkey from the embarrassing record of having the world's largest note in circulation, namely a 20 million Turkish lira bill. One YTL is now worth 0.74 dollars or 0.55 euros. The ant-inflation struggle will also be a principal component of the new arrangement with the IMF, which is expected to be approved by the Fund's executive board early this year. Under the new programme, Turkey is aiming to bring inflation down to eight percent in 2005, five percent in 2006 and four percent in 2007. Despite the spectacular recovery some analysts fear the tide could turn if Ankara eases on spending. But the government has vowed on several occasions that it will not deviate from its tight austerity programme. "We will do our utmost to achieve targets for 2005 and later years, we will not make concessions on our budget and monetray policies and we will achieve the set targets even though there may be small deviations," Babacan said.