ISTANBUL: Turkey said yesterday it will boost capital and relieve some bad debt at banks affected by last year’s currency crisis, as it moved to revive an economy plagued by inflation and recession.
Relief for banks was the first step of the government’s long-awaited reform package, which also included promises to boost valuable export sectors and adjust taxes. The lira, which plunged nearly 30 percent last year, softened slightly yesterday.
The government will deliver debt securities worth 28 billion lira ($4.9 billion) to capitalise state banks and also raise capital levels at private banks, Finance Minister Berat Albayrak said. Dividend and bonus payments would be limited during an economic rebalancing period, he told a news conference in Istanbul.
Turkey’s economy suffered its worst quarterly contraction in nearly a decade after the currency crisis sent inflation soaring as high as 25 percent and left its companies and banks saddled with foreign-currency debt.
“This change and reform process will continue decisively for the next four years,” Albayrak said. “Our first step will be aimed at strengthening our state banks’ capital.”
The reforms will be welcomed by Turks saddled with rising unemployment and by jittery international investors, who have been waiting for the government to signal an unambiguous break from the credit-fuelled growth that has characterised Turkey under President Tayyip Erdogan.
At its nadir last year, the Turkish lira lost nearly half its value against the dollar. The crisis – which shook global financial markets – was set off by strained US-Turkey ties, concerns over central bank independence, and a build-up of leverage.
Economists say Turkey needs to make long-term commitments to shore up banks, relieve debt-laden companies, increase exports and free up the central bank to do its job.
“I think there is a need for a bit more detail, hence the market may see these steps as neutral,” said Inanc Sozer, chief economist at Turkey Macroview Consulting.
He said the capital injection “will largely meet potential needs in terms of liquidity and capital (but) on the other side, it will be an element increasing public debt.”
Finance minister Albayrak, who is Erdogan’s son-in-law, said government loans would prioritise strategic sectors, exports and local production.
The reform package also includes pledges to lower exemptions and reduce corporate tax. The country’s severance pay fund will be integrated with its private retirement insurance fund. –Reuters
