Another essential change made in Central Bank law was the prohibition of advances and credits to the Treasury and public institutions and establishments. As is known, public expenditures can be financed through collecting taxes, privatization, borrowing from domestic and foreign markets or Central Bank’s resources. Financing through Central Bank resources may cause inflationist pressures due to increases in ‘fiduciary’ supply. Therefore conducting monetary policy independently and preventing the use of Central Bank resources in public financing are significant factors for removing this effect. It is not a coincidence that in our country inflation followed a declining trend after November 2001, when the provision of public credit was prohibited. It has since dropped to single digit figures after 30 years. Another contributory factor to be mentioned in the process of fighting inflation is the communication policy of the Central Bank. The significance of efficient communication is undeniable in reducing ambiguity and increasing reliability by making Central Bank policies understandable, assessable and predictable. Since 2001, the Central Bank has placed communication policy at the core of its policies;  4  BIS Review 36/2005  and consequently adopted an efficient policy, sharing all knowledge and forecasts with the public and explained its policies clearly throughout the country. I think efficient communication is highly important in terms of the point we have reached today. Besides central bank independence and communication strategies, the tight fiscal and monetary policies implemented are two other important factors in the fight against inflation.

Sustainable fiscal adjustment in the medium and long-term will depend on the enactment of structural reforms in the public sector rather than on provisional measures. Besides jeopardizing the attainability of budget targets, a delay in structural reforms will also cause the supposedly provisional measures to become permanent. Such implementation might affect the quality of expenditures and revenues unfavorably and cause inflationary impacts due to revenue-boosting methods. Therefore, increased control and effectiveness in public expenditures are critical factors for the quality of fiscal adjustment. A study comparing the fiscal adjustment policies implemented at different times in OECD countries2 revealed that a long-term improvement in public balance can be achieved through expenditure-curbing policies rather than revenue-boosting policies. Besides controlling public expenditures, incomes policy also plays an important role in increasing the quality of fiscal adjustment. For this reason, the implementation of incomes policy must be coherent with the inflation target. As I have mentioned before, important policies are pending in the upcoming period in the framework of the European Employment Strategy. These policies are aimed at ensuring that high growth performance affects employment in such a way to assure a sustainable increase in employment, to increase the additions to the labor force and to establish a more flexible labor market. Developing coordination in economic policies and a harmonization of the decision-making process is another outstanding factor. All these factors will not only establish macroeconomic stability and increase social welfare in Turkey, but also play a key role in the European Union integration process.