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The New Arab Staff & Agencies

Turkey's Erdogan unveils economic reform plan

Erdogan hopes the economic reform plan will boost the confidence of foreign investors [Getty]

Date of publication: 13 March, 2021

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The Turkish lira lost more than half a percent against the dollar in the course of Erdogan's hour-long address in Istanbul.

Turkish President Recep Tayyip Erdogan on Friday unveiled a long-promised economic reform package that he hopes will boost the confidence of skittish foreign investors and temper inflation while boosting trade.

It included tax breaks for small business owners and a pledge to improve efficiency that could help export-driven growth.

But he made no mention of supporting the central bank's independence in future interest rate decisions - a key foreign investor demand.

He identified the fight against persistent inflation as "one of the main objectives" with the goal of quickly "bringing it down to single digits".

The Turkish lira lost more than half a percent against the dollar in the course of Erdogan's hour-long address in Istanbul.

Erdogan has been promising to unveil a major reform package since overhauling his economic team in November.

That shakeup included installing market-friendly economist Naci Agbal as the new central bank chief and accepting his once-powerful son-in-law Berat Albayrak's resignation as finance minister.

Albayrak was widely credited with overseeing a failed policy that focused on supporting growth by keeping interests rates low despite soaring inflation.

The central bank burned through most of its reserves in the meantime while trying to support the lira.

Agbal's hike of the main interest rate to 17 percent in the past four months has helped stabilise the currency.

Read more: Turkey hikes main interest rate to 17%

But Erdogan's unorthodox belief that high interest rates cause inflation - instead of slowing it down - and past pressure on the central bank to keep rates low have drained investor confidence in the Turkish market.

Erdogan's pledges on Friday included an income tax break for 850,000 small businesses and improved transparency in public tenders.

He also vowed to replace imports with domestic products to help local producers and to limit the spending of Turkey's sprawling government administration.

Other pledges included a plan to help banks deal with bad loans and improve their asset quality.

Erdogan set no deadlines for his proposals.

The government's ultimate goal is to bring the annual inflation rate down to five percent by the time Erdogan faces a new election in 2023.

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