* Minister says 2012 growth seen at 2.5 pct
* Central bank cautious not to stoke inflation
* Govt wants strong growth as elections loom
* Central bank document defends need for independence
By Seltem Iyigun
ISTANBUL, Feb 13 Turkey's economy minister took
another swipe on Wednesday at its central bank for failing to do
enough to support economic growth, the latest round of a spat
which has raised concern about the bank's independence as
One of the world's best performing economies through four
years of financial crisis, Turkey expanded just 2.5 percent last
year, down from high single-digit growth in previous years and
below the 3.2 percent hoped for by the government, Minister
Zafer Caglayan was reported by broadcaster CNBC-e as saying.
"We will not achieve what we expected last year. This is
what I meant when I said 'let's put the foot on the gas',"
Caglayan was quoted as telling reporters during his return from
a trip to Libya.
His comment was an apparent reference to Central Bank
Governor Erdem Basci's statement in late January that the
economy has "disembarked from a plane and was travelling on the
highway" following a soft landing last year.
Both Caglayan and Prime Minister Tayyip Erdogan, whose
government has built its reputation on strong economic growth
over the past decade, have picked up on Basci's analogy in
recent weeks and used it to castigate his cautiousness.
"Turkey won't reach its 2023 goals through the highway,
friends, we need to fly," Erdogan told a Turkey-Slovakia
business forum last week.
The central bank has been performing a delicate balancing
act, trying to reinvigorate domestic demand without allowing
loan growth to accelerate so quickly that it stokes inflation
and widens the current account deficit, Turkey's main economic
Last month, it cut both ends of its rate corridor but raised
reserve requirements in a bid to control rapid loan growth and
prevent excessive lira appreciation.
Its complicated policy mix has drawn criticism from
international investors and economists in the past, but has
largely come up trumps by keeping Turkey growing steadily and
robustly at a time when others are not.
But the bank's caution has raised the hackles of some
ministers who, like Erdogan, view strong growth as the top
priority. Caglayan was quoted by the Hurriyet newspaper this
month as warning Basci he was a civil servant who should know
"Everyone should know his own position and limits. The
central bank is appointed and relieved of its duty by government
decree. It is also the government that writes the central bank
law and can change it or not," Caglayan said.
"We need 6-6.5 pct of growth on average. You can't go that
fast on the highway. You can reach 6.5 pct of growth by flying
... We will not leave Turkey's success to the central bank
FLY OR DRIVE?
Erdogan's government has seen a near tripling of per capita
GDP in nominal terms over the past decade, and is keen to
maintain that record with local and presidential elections due
"As much as investors also like to see Turkey's economy
'fly', they typically prefer it to be a well-controlled flight,
and possibly only a 'fast drive' if that is all the global
environment is supportive of," said Christian Keller, head of
emerging Europe research at Barclays Capital.
"Investors would likely not want a scenario where the
central bank excessively eases monetary policy to boost credit
growth and depreciate the currency, only as a consequence to see
rising inflation and a re-widening of the current account
deficit with a few months lag."
Political pressure on the central bank is nothing new.
Erdogan repeatedly said last year he wanted real interest
rates of zero percent, saying high rates amounted to modern-day
theft and lashing out at what he called an "interest rate lobby"
of investors who then wanted higher rates.
Maya Senussi, an economist at Roubini Global Economics, said
the government's aim may be to force the bank to keep rates low
while upping public sector spending in the run up to the polls.
"That would aggravate the problems of inflation and Turkey
being overly reliant on consumption," she said.
The central bank published a 22-page document on Jan. 30
asserting the importance of its independence, one of a series of
academic publications which a bank official said were aimed at
educating students of economics and monetary policy.
"Independence is a prerequisite which enables central banks
to reach their price stability targets more successfully by
making them credible," it said.
Students may not have been the only target audience.
The document was prepared last year but the timing of its
release on the central bank website, as well as its reference to
elections, raised speculation in the Turkish media that it was
part of a defence against the government onslaught.
"Governments may sometimes abandon policies which they have
previously announced and apply policies to increase growth as
they focus on elections in a way that surprises economic
bodies," the document said.
"As a consequence, the (desired) growth cannot be reached in
the long term and inflation sets in at a higher rate."