September 13, 2017 / 8:27 AM / 9 days ago

Erdogan adviser sees recovery in Turkey ties with Germany, EU

ANKARA (Reuters) - Ankara’s relations with NATO ally Germany, hit by a deepening row, are expected to improve alongside a general upturn in ties with the EU early next year, boosting Turkish export and tourism prospects, an adviser to President Tayyip Erdogan told Reuters.

“I expect more calm with Germany after the Sept. 24 (German) election. I expect tensions to ease,” Cemil Ertem, Erdogan’s chief economic adviser, said in an interview on Tuesday.

Turkish-German ties have come under pressure since Erdogan launched a crackdown after a failed coup last year. Germany has criticised mass arrests, refused to extradite people Turkey says were involved in the putsch and demanded the release of around a dozen German citizens arrested in recent months.

“Turkey’s relations with the European Union will be rapidly repaired from the first quarter of 2018. I think Turkey’s exports to the EU will increase further,” Ertem said.

The improvement in EU relations would also lead to a “very good year” for tourism in 2018, he said. The number of European tourists visiting Turkey has declined due to security concerns over the last couple of years.

The economy would grow around 5.5-6 percent this year and around 5-7 percent next year, he said.

INTEREST RATE DEBATE

Ertem dismissed concern about the level of the lira currency after another presidential adviser, Bulent Gedikli, said a stronger lira put exports at risk and called for the central bank to take action.

“Given that we implement a floating rate regime, it is wrong to say that the exchange rate is low or dangerous. The market can make a very rapid correction,” he said, adding he was fine with the lira level set by the market.

Ertem said the central bank was maintaining tight monetary policy and its use of an interest rate corridor enabled it to rapidly adjust the average cost of funding, rather than just depend on changes to the policy rate.

“In this sense we should leave behind debate about whether the central bank will cut rates or not,” he said.

“Everyone wants low interest rates, the real sector, banks, the TCMB and the political side,” he said, but added it was a matter for the central bank to deal with the “market reality”.

He said Turkey would continue to make use of its Credit Guarantee Fund and may seek to focus its allocation on high-tech and intermediate goods producers.

In March the government raised the size of the fund, which guarantees loans to small and medium-sized enterprises, more than tenfold to 250 billion lira (52.80 billion pounds).

The government will also take measures to ease inflationist pressures caused by the immediate goods imports and may provide “serious support” to Turkish producers of such goods, he said.

Writing by Daren Butler; Editing by David Dolan

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