With most analysts predicting that the IMF delegation currently in Ankara going through Turkey's books will likely leave this week pretty satisfied, these are good times for the country's government. News that wholesale inflation had finally dipped below two digits, while exports have continued to rise, has also put market watchers and movers in a strongly positive mood.
"It's looking very healthy," one analyst told the OBG. "The markets are looking for the over-fulfilment of some government targets this year."
The IMF delegation is here to complete the seventh review of the economic programme it has been backing for the country since the financial crisis of February 2001. It seems the government has met the targets envisaged and will likely move on to the next stage after this week.
Meanwhile, State Institute of Statistics (DIE) figures showed promising news March 3, with Wholesale Price Inflation (WPI) down to 9.14%, year-on-year (y-o-y) - the first time it had fallen below two digits in 28 years.
Consumer Price Inflation (CPI) remained higher though, at 14.28% y-o-y, but this represented a 0.55% rise for February, month-on-month - still lower than the 0.7% generally expected by the market.
Meanwhile, there was also good news in exports as March began. Year on year, these were up 32.29% in February. Industrial production also rose, up 6.5% y-o-y in January.
All good news for the IMF too. Yet more useful even than the figures themselves has been the widespread feeling in the market that the crisis is at long last over and the economy is well on the road to recovery. This buoyant mood has meant a radical change in perceptions of, amongst other things, the country's major debt problem.
Total debt stood at $213.8bn in January, with domestic debt now taking up more of a share than foreign.
"Domestic debts usually suffer from higher rates of interest," another top Istanbul analyst told the OBG. "Yet more crucial than the numbers is the mood. While this remains positive, the debt problem looks as if it will be solved eventually, and people are more prepared to be lenient."
This seems to be the case when it comes to the IMF loans that back up the economic programme, which are scheduled to finish at the end of this year. Some are asking what happens then, and whether the economy will be ready for the ending of IMF support. Again though, few seem overly concerned by this. The feeling generally is that the success of the IMF programme in Turkey is also vital to the Fund, and with strong backing for Turkey from the US and the European Union, there is unlikely to be any strong pressure on the government over repaying IMF loans.
Yet despite the good mood, there is one major dampener - unemployment.
The DIE figures also showed that in the last quarter of 2003, the number officially out of work rose to 10.3%, up nearly a full percentage point from the 9.4% of 3Q03. This works out at around 2.4m people unemployed. The DIE also estimated that if the agricultural sector was taken out of the figures, the unemployment rate in the rest of the economy was around 14.6% for 4Q03.
Given the size of the problem, tackling the jobless figures has been exercising minds in the market and the government. Many analysts blame high employment taxes for the reluctance of employers to boost staff numbers. Turkish companies pay much higher rates than in most European countries in taxes on staff salaries, a factor which also boosts the size of the country's unregistered economy.
While exports have boomed, domestic demand also remains low - partly as a result of low wages and high unemployment, many analysts point out. This too feeds the sense of a two-speed economy - one part accelerating away on exports and low domestic prices, while the other remains stuck in the mire of low spending power and low demand.
"It creates an uncomfortable process in production," one analyst told the OBG. "The government has to take some measures soon to ease industry's burdens and boost the purchasing power of consumers."
Meanwhile, many analysts are looking anxiously at the international horizon. While few expect any change in relations with neighbour Greece following last weekend's election victory for the New Democracy Party, there are concerns over the Cyprus negotiations currently underway in Nicosia.
Few expect any kind of outcome from the current round of talks between the Greek and Turkish Cypriot leaders, or indeed from a follow up round in which the Greek and Turkish governments become directly involved. This will mean the UN stepping in to hold a referendum on April 20 on a largely UN-defined plan to reunify the island.
The outcome of the referendum is by no means sure. Neither is the impact of all this on Turkey's own attempts to get a date to begin EU membership negotiations. While the EU has said that Turkey's co-operation in finding a Cyprus settlement is important in gaining a date at the EU summit in December 2004, there are no promises.
Many are therefore worried that Cyprus may be reunited while Turkey is eventually left out in the cold. The consequences of that would be devastating - both for Turkey's relations with the EU, and for the Turkish government, which might be seen to have "given away" the Turkish Cypriots for nothing.
Yet all this remains hypothetical. For now, the market remains confident that the economy is on the right path. It is even willing to forgive government failures over privatisation, with almost all of the state industries scheduled for sell off last year still on the government's books. There were a number of extenuating circumstances surrounding this failure, and the market seems willing to bare them in mind. It is a major turnaround from previous relationships between administrations and markets - and a most welcome one.
