23 Jun 2010
The recent announcement of a new fiscal rule in Turkey has made Turkish assets even more attractive than before, says Giancarlo Perasso, Chief Economist at Matrix-Redux FX Fund.
The Turkish rule is maybe less ambitious than the rule currently discussed in Germany but is more credible, says Perasso, since it directly includes a cyclical element in the adjustment process based on the target growth rate. After establishing a reputation for fiscal prudence in recent years by always achieving a primary surplus since 2002, thus bringing the net debt/GDP ratio to 31% in 2009 from 63% in 2002, the Turkish authorities are now switching from an external fiscal anchor (the IMF programs) to an internal one, a move that can only reinforce their credibility. Perasso is not concerned about the recent tensions between Israel and Turkey or next year’s elections as he thinks that the majority of the population and of politicians are committed to achieving sustainable and sustained growth.
Investors should take further comfort, adds Perasso, from the presence of an independent central bank that is committed to achieve the inflation target, although not at the cost of plunging the economy in a severe recession. The recent overshooting of the target was due to external factors and the bank correctly just kept a watchful eye on inflation. Recent data show a more favourable inflation outlook and the bank is set to raise interest rates as the economy picks up.
The combination of fiscal prudence, independent monetary policy and resumption in growth should prove irresistible for investors says Perasso, who sees the Turkish Lira appreciating strongly in the next 6-12 months, by 10-15% with respect to the USD.
The Turkish rule is maybe less ambitious than the rule currently discussed in Germany but is more credible, says Perasso, since it directly includes a cyclical element in the adjustment process based on the target growth rate. After establishing a reputation for fiscal prudence in recent years by always achieving a primary surplus since 2002, thus bringing the net debt/GDP ratio to 31% in 2009 from 63% in 2002, the Turkish authorities are now switching from an external fiscal anchor (the IMF programs) to an internal one, a move that can only reinforce their credibility. Perasso is not concerned about the recent tensions between Israel and Turkey or next year’s elections as he thinks that the majority of the population and of politicians are committed to achieving sustainable and sustained growth.
Investors should take further comfort, adds Perasso, from the presence of an independent central bank that is committed to achieve the inflation target, although not at the cost of plunging the economy in a severe recession. The recent overshooting of the target was due to external factors and the bank correctly just kept a watchful eye on inflation. Recent data show a more favourable inflation outlook and the bank is set to raise interest rates as the economy picks up.
The combination of fiscal prudence, independent monetary policy and resumption in growth should prove irresistible for investors says Perasso, who sees the Turkish Lira appreciating strongly in the next 6-12 months, by 10-15% with respect to the USD.
