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Merrill Lynch:  Turkey's Economy Still Troubled - 2002-07-03

A major U.S. financial institution, Merrill Lynch, continues to be pessimistic about Turkey's economic prospects despite some positive words from Turkey's key creditor, the International Monetary Fund. Turkey was on the agenda of an economic forum in Washington Tuesday.

Merrill Lynch said Turkey continues to be troubled by political uncertainty and indifference towards foreign investment. Matthew Vogel, an expert on Turkey at Merrill's London office, said rising interest rates and a declining currency suggest that economic growth will be lower than the two percent rate previously predicted for this year. Mr. Vogel said Turkey is too dependent on loans and doesn't do enough to attract foreign investment.

With its lukewarm attitude towards joining the European Union, Mr. Vogel told the economic conference Turkey's government is out of step with the views of the people.

"I do, however, see this [EU membership] as a major issue for Turkey in the next 12 to 24 months if there can be some form of political change in which parties finally come into line with what the Turkish population wants, which is European Union membership," Mr. Vogel said.

Mr. Vogel compared Turkey unfavorably with neighboring Romania. Unlike Turkey, Mr. Vogel said, Romania stimulates competition in the financial sector by allowing foreign banks into the country. In Turkey, he said, a small group of Istanbul banks, is manipulating Turkey's fragile financial markets by speculating on the weakness of the country's own currency, the lira.

IMF executive, Juha Kahkonen, said Turkey has operated well below its economic potential for several decades, recording higher inflation and lower growth in each successive decade.

He said Turkey's repeated stab at economic reform since 1999 produced mixed results, but the government has made some progress in fighting inflation.

"This good performance is reflected in the very strong efforts the government and all economic officials have made," Mr. Kahkonen said.

Still, with Turkey's lack of financial discipline, poor record on privatization and shabby treatment of foreign stakeholders in Turkish companies, economists' outlook on Turkey's economy is guarded.