No concession from discipline - CB .hurriyet2008-detailbox-newslink { font-family: Arial, Helvetica, sans-serif; font-size:13px; font-weight:bold; text-decoration:none; color:#000000;} .hurriyet2008-detailbox-newslink:hover { font-family: Arial, Helvetica, sans-serif; font-size:13px; font-weight:bold; text-decoration:underline; color:#990000;} ISTANBUL - Crisis-hit governments worldwide are launching lavish public spending programs, but Turkey refrains from doing so. Durmuş Yılmaz, governor of the Central Bank, says this is not the way for Turkey, as the country is not able to act in an expansive way

Turkey's business circles are requesting support packages similar to those offered in the West, but the Central Bank governor closed the door on such a package Wednesday. Speaking at the assembly meeting for the Istanbul Chamber of Industry, or ISO, Durmuş Yılmaz said precautions Turkey takes should be "protective rather than expansionary."

Rescue packages developed countries are launching can be categorized into two types, said Yılmaz. "Including financial support to the banking system, the first type focuses on preventing fluctuations in the financial markets at the beginning of the crisis," he said.

"The second type emerged in the latter stage of the crisis," he said. "They took effect when the crisis spread from finance to the real economy. The second type of package is related to the increase in public spending and providing credit support for the real sector."

Turkey implemented a rescue package for the banking system following the 2001 economic crisis, Yılmaz said. "With this package, Turkey did its homework well and made the banking sector healthy. So Turkey does not need to prepare a cash-based support package that would create a financial burden. We did that in 2001," he said.

Active measures
The Central Bank took active liquidity measures to inject confidence into financial markets and according to changing conditions, we will be flexible in taking further measures," said Yılmaz.

"Now the discussion is over whether Turkey needs to prepare a second type of 'pump priming' support package, which focuses on increasing public spending and providing credit support to animate the real sector," he said.

What is going to happen in the event Turkey increases public spending is quite clear, he said. "This would cause interest rates to increase and raise risk premiums."

In Turkey, real interest rates are already relatively high and maturities are short, said Yılmaz. "So if we do not want interest rates and risk premiums to rise even higher, we cannot make concessions in terms of fiscal discipline and price stability."

Accordingly, Turkey's economic structure is not in a position to implement expansionary fiscal policies, Yılmaz said. "It would result in an even higher rise in interest rates and in risk premiums, it would also cause credit opportunities to be constrained."

Consequently, an expansionary monetary policy would negatively affect economic activity and the welfare of society generally, said Yılmaz. "What Turkey needs to do is to focus on precautions to increase confidence in the market," he said.

These precautions should be oriented toward enhancing production and productivity, said Yılmaz. "Fixing possible deficiencies in the credit mechanism is also a path. The approach of the Central Bank is heading in this direction.

"Whatever package is offered, it should be realistic and it should consider the mid-term interests of society. This can be done by undertaking the cost-yield analysis well," he said.