Turkey puts infrastructure projects on hold

In a speech to officials from his AK Party on Friday, Erdogan said ministries were reviewing their plans for big new public investments, with some of them postponed or even cancelled.

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The Turkish president said the government would complete projects that are "90 percent, 80 percent, 70 percent complete" under updated government investment plans.

"We are not considering brand new investments. We will complete the ongoing investments. We will not harm the building contractors," he said.

Erdogan's announcement comes as Turkey is battling double-digit inflation — at about 18 percent in August — as a result of an economic boom fueled by rising government debt.

In recent months, however, the Turkish currency has come under mounting pressure, slumping nearly 40 percent this year amid growing investor concern for Turkey's ability to pay off its mostly US dollar-denominated debt.

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Therefore, the scaling back of infrastructure plans would be welcomed by investors, who have repeatedly warned about surging costs of new hospitals, bridges and roads that are mostly built in private-public partnerships.

However, the Turkish president is still reluctant to let go of any of his 'mega projects,' which are intended to celebrate the Turkish republic's centenary this year. In addition, he continues to detest monetary policy measures, such as higher interest rates, to stem the slide of the lira.

Limits to patience

On Thursday, the Turkish central bank surprised markets with a higher-than-expected interest rate hike, lifting Turkey's benchmark rate by more than 600 percentage points to 24 percent.

Read more: Turkish interest rate rise brings Erdoganomics down to earth

The move, which shored up the lira by about 5 percent, roiled Erdogan, who had described higher rates as a "tool of exploitation" just hours before the central bank's decision.

In his first comments on the decision, the Turkish president on Friday described the rate hike as "very high," but added that the central bank was independent in its policy.

"They say independence, there you go independence. Now we will see the result of independence. Right now personally I am at my phase of patience. But this patience is to a certain extent. Because we can't say OK to a lever of exploitation," he said.

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Investors said they were now expecting the Turkish government to draw up a clear fiscal plan about how it wants to bring its budget deficit down below 2 percent — the government's target to be achieved under its medium-term economic program. Moreover, they have urged Erdogan to resolve Turkey's disputes with the United States that triggered the currency crisis in the summer.

uhe/tr (Reuters, AFP)