By Jonathan Spicer and Ezgi Erkoyun
ISTANBUL (Reuters) - Turkey's economic turnaround is yielding results, EBRD Vice President Matteo Patrone told Reuters on Friday, adding that the bank aims to match its record investment in the country this year.
Since June 2023, the government and central bank have sought to reverse years of unorthodox policymaking with tighter monetary policy and coordinated fiscal policy.
Patrone, who met with government officials including Finance Minister Mehmet Simsek during his visit to Turkey, said he was "very impressed" with the economic programme, the combined action of monetary and fiscal policies, and support shown by the business community for these policies.
The central bank has hiked its main interest rate to 50% from 8.5% since June last year to bring down inflation, which is seen by economists and the government falling to around 40% by the end of this year from 71.6% currently.
Speaking at the Istanbul offices of the European Bank for Reconstruction and Development (EBRD), Patrone said such forecasts are in line with the trajectory foreseen by the government's economic team.
"So it seems that the direction of travel is certainly the right one. And investors' confidence is coming back as a result of that," said Patrone, the development lender's vice president for banking.
When asked about the possibility of President Tayyip Erdogan changing his mind about the current economic policies, Patrone said that there was no alternative.
"From our conversations, I think there is a cautious optimism that this (economy plan) is going to be completed. Indeed because there is no alternative, and because we have started seeing the results."
Last year, the EBRD invested a record 2.5 billion euros ($2.71 billion) in Turkey, driven by green investments and spending on the recovery from the devastating earthquake in February 2023. The bank expects to match that figure in 2024, having invested almost 1 billion euros so far this year, Patrone said.
Part of that will be earthquake-related investments focused on municipal infrastructure and supporting small and medium-sized enterprises in the area.
"Our pipeline is wide enough and deep enough to give us comfort that we should reach the level of last year. We are on the right trajectory." Patrone said.
In March, Turkey's Treasury signed a memorandum of understanding with the EBRD for 500 million euros in financing for the region hit by the earthquake and the bank pledged to invest up to 1.5 billion euros there over two years.
Ankara says it aims to attract foreign direct investment and change the composition of economic growth by boosting investments, production and exports while also continuing efforts to cool inflation that ate into Turks purchasing power.
"The investors' appetite is coming back. This is true for portfolio investors, but also for FDIs," Patrone said, adding that, anecdotally, there was much more foreign interest in Turkey than 12-18 months ago.
"It will probably materialize going forward. Let's see what happens in 2025, but towards the end of 2025, I think that should gather momentum."
In May, Turkey announced a plan to rein in public spending that means only essential state investment projects would go ahead and said it worked on tax regulations to improve fiscal discipline and increase budget income.
The Turkish fiscal plan is likely to impact Public Private Partnership projects, Patrone said, but necessary infrastructure development should continue.
"While there is focus on reducing fiscal burden, there is also an understanding that the infrastructure development in the country cannot stop," he said. "So certainly, there will be changes. But I don't expect major changes in the direction of travel."
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