UPDATE 1-INTERVIEW-Turkey says Fed relief temporary, reforms needed
* Fed tapering delay a short-term boost for Turkish markets
* Growth heavily consumption-led
* Simsek says government determined on rebalancing
* Says spending will not overshoot budget target
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ANKARA, Sept 19 (Reuters) - Turkey will get only brief relief from the surprise postponement of a reduction in U.S. monetary stimulus and must press ahead with plans to rebalance its economy, Finance Minister Mehmet Simsek said on Thursday.
Turkish assets rallied in response to the Fed's decision on Wednesday to delay the start of winding down its bond-buying programme, with the lira firming as much as 3 percent and stocks up more than 7 percent.
A gaping current account deficit, mostly driven by huge energy imports, and high foreign debt have made Turkey one of the countries most exposed to a shift in global capital likely to follow a cut in bond purchases by the U.S. central bank.
"The Fed's tapering decision will provide temporary relief, but its current policy will not continue forever," Simsek told Reuters in an interview in Ankara.
"Price volatility, interest rates, exchange rates or other variables - I don't see them as a fundamental crisis. I see this as repricing of assets," he said.
Turkey has seen explosive consumption-led growth over the past decade, with per capita wealth almost tripling in nominal terms, but it has struggled to balance that expansion, with a low savings rate and huge energy deficit leaving it highly vulnerable to global energy prices.
"Turkey's growth has traditionally been driven by domestic demand. This is not preferable," Simsek said.
"We are working on a medium- to long-term reform plan to improve this but at the end of the day structural changes take time. Turkey's growth next year will probably continue to be domestic demand-driven as well," he said.
Turkey has relatively weak foreign direct investment compared to emerging market peers, so it relies on volatile portfolio flows and short-term debt to finance a current account gap that exceeds 7 percent of gross domestic product (GDP).
Economists question whether it is undertaking the structural reforms needed to attract more investment fast enough, particularly given that Fed tapering, when it inevitably comes, will stem the flow of foreign money to its capital markets.
"If Turkey has been able to manage so many external shocks, one of the most important factors behind this is the government's will to maintain fiscal discipline and structural reforms," Simsek said.
A bill aimed at greater flexibility in the labour market, one such reform of concern to long-term investors, would go to parliament next month, Simsek said.
NO BUDGET OVERSHOOT
With a cycle of local, presidential and parliamentary elections beginning next year, investors fear Prime Minister Tayyip Erdogan's government will seek to pump-prime growth.
But Simsek said government spending would not overshoot budget targets this year.
He forecast the budget deficit would come in below the government's target of 2.2 percent of GDP and the primary surplus would exceed its 1.2 percent target.
"We will keep the deficit low this year but we will continue to support some areas necessary to build the country's long-term future, if we can," he said.
"We have significantly prioritised infrastructure, education and research and development. If our income performance is above expectations than we will partially use it for infrastructure, and partially for the budget."
He said government coffers would be boosted by an additional $2.7 billion in privatisation receipts by the end of the year, with the tender for the big-ticket sale of the national lottery company also due to be completed by then.
Erdogan's AK Party has built its reputation on Turkey's strong economic growth over the past decade, an image it does not want to see tarnished as elections approach.
It faces strong headwinds.
"Downside risks on growth are still there. The recovery in Europe may help, but I think growth will still be under 4 percent this year," Simsek said.
He denied suggestions that the central bank, which has ruled out growth-damaging rate hikes to defend the lira, was being influenced by Erdogan's championing of low interest rates and desire for growth at all costs.
"The central bank has performed superbly in a very difficult period," he said.
"Inflation targets are agreed together but how to attain the target is the central bank's business ... It is totally independent in when and which tools it will use."
(Writing by Nick Tattersall; editing by Stephen Nisbet)