* Budget deficit ratio seen at 1.2 pct this year
* Simsek says fiscal discipline will remain strong
* Some economists foresee temptations to pump-prime growth
By Orhan Coskun
ANKARA, Oct 11 Turkey's Finance Minister said he
would not use the runup to 2014 elections to follow past
governments in courting popularity through heavy spending,
presenting a budget that prods the deficit higher but keeps it
under 2 percent of national output.
Next year's local elections, including a vote in Istanbul,
mark the first test of Prime Minister Tayyip Erdogan's rule
since anti-government protests and riots in June. Some experts
fear a burst of public spending that could fuel inflation and
put more pressure on an already huge current account shortfall.
Turkey's public debt remains one of the lowest among its
peers as a percentage of GDP but its balance of payments
problems prompted the International Monetary Fund last week to
call for it to tighten monetary and fiscal policy.
"We have not drafted an election budget for next year, just
as we didn't in the past. We are not seeking an election
economy," Mehmet Simsek told a news conference.
"For the first time you will see that we are strongly
controlling current expenditures and even reducing them in real
terms. This is a strong message," he said, adding the aim was to
increase Turkey's resilience to external risks.
Erdogan was first elected in 2002, becoming head of a
single-party government after decades of fractious coalitions.
Heavy and conspicuous spending in the runup to elections, on for
example roads and other infrastructure projects, was a common
phenomenon in the 1990s.
Turkey also faces a presidential election next year and
parliamentary polls in 2015.
Detailing the spending plans, Simsek said the budget deficit
would stand at around 19.4 billion lira ($9.6 billion), or 1.2
percent of GDP, by the end of this year, well below a previous
forecast of 2.2 percent.
Turkey has benefited from higher-than-expected privatisation
receipts, particularly from the sale of electricity distribution
networks, and other one-off revenues this year. The deficit is
expected to widen in 2014, but Simsek said it would still come
in at 1.9 percent of output.
In its medium-term programme announced this week, the
government forecast the deficit would widen to 33.2 billion lira
next year before narrowing again to 29.5 billion in 2015 and 23
billion in 2016.
"Overall markets will find the discipline of the government
budget favourable and its stance towards the mid-term plan
credible after these statements, as long as they are
implemented," said Erkan Dernek, market strategist at Odeabank.
The budget balance, which fluctuates heavily month to month,
showed a deficit of 4.7 billion lira in September, giving a
deficit for the first nine months of 4.5 billion and a primary
surplus, which excludes interest payments, of 39.3 billion.
Simsek said those figures showed the budget performance so
far this year had been better than anticipated.
Erdogan's government has overseen some of Europe's fastest
growth and a near tripling of Turks' nominal wealth over his
past decade in power, a record he is keen to maintain as the
country goes to the polls.
But his determination to keep growth high comes as Turkey,
whose explosive consumption-led expansion has left it with major
structural imbalances, is particularly vulnerable.
A gaping current account deficit, mostly driven by huge
energy imports, has made Turkey one of the countries most
exposed to a shift in global capital likely once the U.S.
central bank starts to reduce its bond purchases.
Relatively weak foreign direct investment compared to
emerging market peers leaves it reliant on volatile portfolio
flows and short-term debt to finance a current account gap that
exceeds 7 percent of GDP.
The government this week cut its economic growth forecasts
for this year and next, lopping one percentage point off the
2014 figure to 4.0 percent after a revised 3.6 percent estimate
Simsek told Reuters in an interview last month that growth
was still too consumption-led but noted that structural changes
would take time.
The current account deficit narrowed to $1.995 billion in
August, below the $2.1 billion forecast in a Reuters poll but
still significantly higher than the previous year, according to
central bank data released on Friday.
"The current account deficit is showing scant evidence of
narrowing, remaining enlarged and still a key Achilles' heel for
the Turkish economy," Timothy Ash, head of emerging markets
research at Standard Bank, said in a note to clients.