Turkey - Kemal Unakitan.

The Finance Minister since the AKP came to power in late 2002, Unakitan on May 3 outlined a multi-billion dollar public spending programme, easing fiscal policy ahead of a new, probably much less stringent, agreement with the IMF. He said his ministry was revising some key budget targets between 2008 and 2012 to release about 17 bn new Turkish liras (TL) 0 about $13.4 bn) for investment in infrastructure.

The announcement was a sign that the government, chafing under strict IMF oversight and beset by a political crisis as the AKP faced a ban by the country's highest court (see Gas Market Trends), intends to pursue an ambitious public spending programme, much of it concentrated in Turkey's unsettled south-eastern region.

The government's ability to spend on infrastructure has been curtailed since 2002 by a $10 bn loan agreement with the IMF which set strict targets for public finances. The most visible of these was a primary surplus - the budget surplus before interest payments - which was once as high as 6.5% of GDP.

Unakitan said the government was revising the primary surplus target down to 3.5% for 2008 and to 2.4% in 2012, after an upward revision of the size of the economy this year. The shift to increased public spending is unlikely in principle to worry the financial markets, given Turkey's TL750 bn economy.

What might concern investors, however, is that it coincides with an economic slowdown, heightened political tensions and signs that the Central Bank might raise interest rates steeply this month to curb inflation, currently at 9.7%. Monetary policy is about to be tightened as fiscal policy is loosened.

The five-year investment programme includes funds to boost agricultural production and keep food prices from rising excessively. It suggests the government will seek a looser arrangement with the IMF when the agreement ends on Saturday.

Turkey is expected to sign a "precautionary stand-by arrangement" which will allow for some fund oversight of fiscal policy. But this will not include guaranteed funding.

Unakitan is a long-standing friend of PM Erdogan. Like Babacan and Sener, Unakitan is a hard working man and has emerged as a leading economic figure in the government. He reminds people of the late Turgut Ozal, who in the 1980s led the reform process in Turkey. Aged 62 and a former company manager, Unakitan often expresses his long-term ambition of transforming Istanbul into an international financial centre. His immediate concern is to bring interest and inflation rates down.

In April 2003, Erdogan gave Unakitan responsibility for a $4 bn programme. When he was subsequently asked by a reporter whether Ankara would simply pick the highest bidder or exclude buyers with a poor record of corporate governance, he said: "We don't want any headaches from customers to whom we sell companies... We can tell who's who by meeting the customers. We were not born yesterday". All privatisation proceeds have gone towards reducing Turkey's debt stock.

Unakitan in 2003 said: "We support privatisation not because the IMF wants us to or because we need to pay our debts but because it is essential for the future of Turkey". As he has been overhauling tax collection, Unakitan has been calling for a "tax peace". He has allowed tax debtors to reschedule arrears. This was to bring in a windfall gain of "much more than" $1.6 bn in 2003. He said in May 2003 that anything over $1.6 bn was to serve to retire domestic debt and not to finance new spending. But he pointed to $750m netted in the first quarter of 2003 by the scheme to disagree with the IMF, which initially forecast $500m for the whole year, that the scheme was not to reap more than $1 bn in 2003. He said: "They [the IMF] have valuable experts... but our experts know the realities of Turkey better..."

Before the AKP came to power, Unakitan and Erdogan faced charges of graft. But both said the charges were politically motivated. Unakitan gained his seat in parliament after running in Erdogan's place when judges decided that the AKP leader could not run in the November 2002 elections for having recited a poem comparing minarets to bayonets. When their party also won the local elections in March 2004, Unakitan repeated what he used to say before November 2002: "Our mission is to end corruption and put Turkey on the right course". He said the same after the AKP won a landslide victory in parliamentary elections on July 22, 2007, which led to the election of Abdullah Gul as the first Islamist president of the Turkish Republic.

Unakitan on Jan. 27, 2006, said Turkey's 2005 budget deficit was below TL10 bn ($7.4 bn), well within a revised target of TL12 bn, noting: "We are even within the Maastricht criteria", as the deficit was 2% of GNP. The EU's Maastricht criteria stipulate that states should hold their budget deficit below 3% of GNP. (Turkey began EU membership talks on Oct. 3, 2005, is not expected to join the bloc before 2015.