New Turkish govt faces urgent challenges on economy

By Selcuk Gokoluk - Analysis

ANKARA (Reuters) - Five years of stellar economic performance helped Turkey's ruling AK Party win key parliamentary elections, but it will urgently need to tackle stalled privatisations, social security reform and a spending overrun to keep the economy on track.

Turkey has recovered from a deep financial crisis, notching up annual growth rates averaging more than 7 percent over the last four years, while per capita income and tourism proceeds doubled and foreign investments soared to $20 billion (9.7 billion pounds) last year.

But analysts said that the new AK Party government would need to immediately confront urgent issues in the economy. Prime Minister Tayyip Erdogan has already promised to quickly push ahead with reforms.

"Our view is that it (AK Party) will have to reverse the pre-election fiscal slippage and reinvigorate the stalled social security reform and privatisation process, particularly in the energy sector," UBS EMEA strategist Roderick Ngotho said.

The centre-right government delayed implementation of critical IMF-sought social security reforms to 2008 after a constitutional court veto forced it to revise the package.

Ankara has also postponed several privatisations.

"The government will have to show good results in these areas if it wants to keep the current IMF programme alive, and potentially have a new programme in place when the current one expires in May 2008," Ngotho said.

Turkey's $10 billion loan deal with the IMF, which has helped it recover from a 2001 crisis that nearly bankrupted the country, is due to expire next year and analysts say that while Turkey does not need IMF cash, a follow-up deal with be useful.