OECD urges Turkey to implement promised reforms to lift productivity

By Ece Toksabay

GAZIANTEP, Turkey (Reuters) – Turkey needs to invest more in education and research, deepen trade agreements and strengthen the rule of law if it is to increase productivity and boost its exports, the OECD said on Friday.

In a broad survey, the Organisation for Economic Co-operation and Development urged the government to put its promised reforms in education, governance, labor and taxes into action, noting that they had been delayed by repeated elections.

“Turkey is no longer experiencing ‘boom-and-bust’ cycles, but external deficits expanded and the net external investment position has deteriorated somewhat over the past decade,” the OECD said.

“In a difficult political context and amid four national elections over 2014-15, implementation lagged.”

Finance Minister Naci Agbal told Reuters last month Turkey would take “swift and bold” economic decisions this year, and promised reforms to boost exports and employment.

Parliament passed a package of laws meant to encourage investment and improve the business climate on Friday, including measures to cut bureaucracy and costs for employers, as well as steps to increase individual savings by making pension schemes more attractive.

But investors fear the momentum of reforms will slow as the government gears up for another national vote, potentially as soon as this year, on constitutional change to introduce the presidential system sought by President Tayyip Erdogan.

The OECD said Turkey’s economy, which grew a higher-than-expected 4.8 percent year-on-year in the first quarter, had remained resilient under adverse conditions, and that stronger growth was within reach if reforms were delivered.

It also called for a strengthening of the rule of law, judicial independence and the fight against corruption to improve the investment climate.

CUSTOMS UNION

Deputy Prime Minister Mehmet Simsek said upgrading Turkey’s customs union with the European Union to include agriculture and services was an important target that could nearly double trade with the bloc from $158 billion to $300 billion a year.

At a joint news conference with the OECD’s secretary-general in the southern city of Gaziantep, he said Turkey needed structural reforms to make it more resilient to shocks but said it had a strong economic record, adding millions of new jobs despite global uncertainty and two years of elections.

The OECD, which last issued a survey on Turkey two years ago, said trade agreements to abolish tariffs on manufactured goods should be widened to include services, investment, competition, intellectual property and public procurement.

It also said Turkey should continue to contain consumer credit and promote private pensions to try to boost domestic saving.

It urged the central bank to tighten monetary policy unless inflation declined faster than projected, and to simplify its policy framework to boost its credibility.

The bank has repeatedly cut interest rates in line with Erdogan’s calls for cheaper credit, even though inflation remains above target, although it has vowed to improve the transparency of its policy.

(Additional reporting by Akin Aytekin in Istanbul, Editing by Nick Tattersall and Angus MacSwan)