Turkey: Investor confidence is crucial
The economy slowed in 2008 as weakness in domestic demand was compounded by the international slowdown in the wake of financial market turbulence. Growth is expected to decline to below 2% in 2009 before recovering to 4.2% in 2010, in line with the global recovery.
As the current account deficit is large and the volatility of the exchange rate has considerably increased, supporting investor confidence is crucial. Fuller fiscal transparency and implementing credible spending rules would facilitate the operation of automatic stabilisers without undermining confidence. If systemic liquidity risks emerge in the financial system, the government should be prepared to introduce contingency support mechanisms to preserve the hard-won stability of the financial sector.