Download May 2010 GENERAL ASPECTS OF THE TURKISH ECONOMY

May 2010
GENERAL ASPECTS OF THE TURKISH ECONOMY
I)
Short Assessment of Turkish Economy in the Pre-Crisis Period
*The economic crisis that the world has been experiencing over the past two
years, is definitely the worst since the World War II in terms of how the
financial sector was influenced.
* Turkey initiated comprehensive structural reforms in the aftermath of 2001
crisis which aimed at sustaining macroeconomic stability and improving
national economy’s resiliency, productiveness and efficiency. These reforms,
without doubt, strengthened the macroeconomic fundamentals. Especially, the
soundness of the banking sector provided a buffer against external shocks.
* Significant steps were taken in order to restructure and rehabilitate the banking
sector, which was once Turkey’s Achilles Heel. In this context, the government
enhanced the financial structure of private banks, restructured state banks and
improved the regulatory and supervisory framework.
* The banking sector has achieved much healthier and more robust position
through reinforcing its capital structure and implementing effective risk
management. In the meantime, decline in the public sector borrowing
requirement, thanks to the fiscal discipline, has considerably contributed to the
improvement in banking sector’s balance sheet. Turkish banks gradually
reduced the share of government securities in total assets and instead extended
credits to the real sector and households.
* Political stability, structural reforms, coupled with the prudent and tight fiscal
and monetary policy have paved the way for uninterrupted growth till the end of
2008, when the global financial downturn first started. Turkey’s gross domestic
product (GDP), which was 230 billion US dollars in 2002, more than tripled and
reached 741 billion US dollars at the end of 2008. Moreover, the GDP per capita
almost tripled to 10,436 US dollars in 2008. This astounding economic
performance achieved in six years placed Turkey as the second fastest growing
economy among the OECD member countries.
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* Determination of our country towards creating a stable and strong economy,
has attracted both domestic and foreign investors. Turkey has emerged as a top
investment destination due to the elimination of bureaucratic barriers to a large
extent, improvement in tax system, facilitation of profit transfers and successful
privatization programs. The total amount of foreign direct investment inflows in
the last four years have reached to 70 billion US dollars.
*On the other hand, the total amount of the direct investments by Turkish
businessmen and entrepreneurs abroad has reached to 17,3 billion dollars during
the last ten years.
* At present, our economy is the 17th largest in the world and 6th largest in
Europe. We aim to be among the 10 biggest in the world by the year 2023, in
other words by the Republic’s Golden Anniversary.
II)
The effects of the global crisis and the recent situation in the
Turkish economy
* Due to the global crisis, majority of the emerging markets suffered a
significant slowdown in economic activity. Being an open and free-market
economy, integrated with the global economic and financial system, Turkey was
no exception.
* Turkey is particularly influenced from declining external demand and falling
international capital flows.
* Overall growth rate in 2008 decelerated well below the remarkable
performance that we achieved between 2002 and 2007. GDP growth slowed
down to 1,1 % in 2008, from an average of 4,5% during 2002-2009 period,
despite the negative effects of the global financial crisis, prevailing during the
last two years. However, we are expecting around 4-4,5% of growth rate in the
year 2010.
* Our exports declined to 102 billion dollars in 2009, while it was 132 billion
dollars in 2008. The most evident reason behind this drop is, of course, the
general decline in external demand, due to the global financial troubles.
* We observe a similar trend of decline in our imports, due to the combined
effect of weakening domestic demand and falling prices, especially of energy.
Our imports decreased to 141 billion dollars in 2009, from 200 billion dollars of
the previous year.
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* However, in the last couple of years we have introduced several regional
trade development strategies towards neighbouring and surrounding countries,
Asia-Pacific region and the continents of Africa and America to ensure durable
export growth and diversification of export markets. Those strategies produced
successful results. A special priority has been given on increasing our
commercial relations with our neighbouring and surrounding countries with
which we share common history, same geography and similar culture and
traditions. Thanks to these policies, the adverse effects of the current contraction
in our traditional markets such as EU economies due to the crisis were kept in
minimum levels.
*With our new foreign trade strategy, we aim to grab 1.6 % of the total global
trade by reaching an export volume of 500 billion USD in 2023, the year which
marks the 100th anniversary of the foundation of the Republic of Turkey.
*When it comes to foreign direct investments, our dynamic economy, large
internal market, competitive industry and skilled labor force offer numerous
opportunities for foreign investors.
* We have changed the whole legal system in a liberal manner so that foreign
investors can come and invest in Turkey without any hesitation.
*Foreign direct investment inflows which were only 1,1 billion US dolar on
average between 1993 and 2002, increased gradually afterwards and reached to
20,1 billion US dolar on average between 2006 and 2008. Despite the global
downturn, Turkey still managed to receive 7,7 billion $ of direct foreign
investment in 2009. The total amount of FDI is 85 billion $ between 2002-2009.
*The number of foreign companies was only around 5.000 in 2001 and this
number steadily increased to about 23.500 in the year 2009. We have registered
a 25,5% increase in the number of foreign companies during the last two years
despite the global economic downturn.
*On the other hand, by the end of 2009, Turkish construction sector has
secured more than 161 billion dollars worth of contracts in 81 countries so far.
Although 2009 was a difficult year for the construction sector in the global
scale, Turkish contractors engaged in many projects abroad, the total amount of
which is about 19 billion dollars.
According to the “Top 225 International Contractors" list of Engineering News
Record magazine, Turkey is the second country in the world with its 31 firms.
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*On the other hand, Turkey's privatization efforts have gained significant
momentum in recent years. Privatization portfolio has included major state
economic enterprises such as State Tobacco, Salt and Alcohol Enterprises,
Turkish Electricity Distribution Company, Turkish Airlines, Turkish Telecom,
iron and steel mills and sugar factories. The total revenue generated from the
privatization of public assets between 2002 and 2009 is more than 31 billion $.
* Consequently, the impacts of the global financial crisis on the Turkish
economy have been fairly limited thanks to the healthy banking sector, prudent
fiscal and monetary policy stance, floating exchange rate regime and strong
international reserves. The main difference between the Turkish economy and
its peers is that we did not transfer any public funds to the banking sector or
change the deposit guarantee scheme.
* The current crisis has revealed that the Turkish banking system is in a
healthy state and well functioning with its strong capital base and improved risk
management system. The absence of toxic assets also prevented the sector from
experiencing write-downs.
*While many western banks have lost billions in write-offs, sustained heavy
losses and even some collapsed totally, Turkish banks have managed to keep
troubles at bay during the global crisis and continued to realize substantial
profits. Even foreign banks operating in Turkey posted record profits while their
parent companies were busy with write-offs on unpaid loans and credits.
III) Measures Taken By Turkey to Mitigate the Adverse Effects of the
Crisis
*Thanks to the strong and resilient features of the Turkish economy which have
been outlined above, the adverse effects of the global downturn have been
limited as compared to the other countries in the western world which were
severely affected.
* Despite that, many measures have been taken by our government and the
Central Bank in order to mitigate the adverse effects of the crisis. Besides
lowering short-term interest rates, Central Bank of Turkey resumed its
intermediary role in the Foreign Exchange Deposit Market, extended the
maturity of foreign exchange deposits borrowed by the banks and reduced the
lending rate.
* We have undertaken a series of initiatives, such as credit guarantee scheme for
enterprises, as well as interventions in the sectors that are under increased
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pressures. In this context, we have taken immediate action to stem the rise in the
non-performing loans, especially loans extended to small and medium sized
enterprises.
* Value-added tax and special consumption tax on selected products have been
cut temporarily so as to boost the domestic consumption and subsequently
revive the economic activities.
* We have doubled the capital of Turkish Eximbank and made some
adjustments in interest rates and maturities. In February 2009, "Credit for
International Fair Attendance" program was introduced for the exporting firms
attending international fairs abroad to market and promote their products.
*We are still working hard to limit the adverse effects of the global economic
fluctuations and crisis on our exports, to achieve sustainable export growth and
to ensure diversification in exporting sectors and export markets via successful
market access operations and innovations.
*With regard to the labor market, we have reduced the financial and nonfinancial burdens on employers and we have widened the scope of
unemployment insurance payments made by the government.
*Furthermore, we have announced a new investment incentive scheme which
is quite comprehensive. It involves reduced corporate income taxes, low
employment taxes and allocation of treasury land for those investments which
will start before the end of 2010.
*On improving innovative capacity, one of the most important steps that we
have taken was the introduction of a new and comprehensive Research and
Development (R&D) Law in 2008. With this law, Turkey aims to accelerate
both foreign and local R&D investments and develop a more conducive
environment for innovation. The share of R&D in the general budget has
increased 34 times in the last 7 years.
*Positive impacts of these measures have already been observed on the
economy and are expected to continue in the upcoming period. Both our own
forecasts and international institutions’ forecasts confirm that, the Turkish
economy will return to its high growth trajectory once the global economic
conditions improve.
*While focusing on mitigating the threats posed by the crisis, Turkey is not
losing sight of the long-term vision. With this in mind Turkey has taken the
necessary measures that will strengthen country’s macroeconomic fundamentals.
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In this respect, the Government has announced the Medium Term Program.
This program, which covers the 2010-2012 period, outlines fiscal targets for the
following three years, exit strategy and forecasts of major macroeconomic
variables.
* Main purpose of this program is to establish a framework that will enable
Turkey to achieve a sustainable growth rate in the aftermath of the exit from the
crisis and to raise the welfare of the society. With this Programme, Turkey has
revealed some forecasts pertaining to the key macroeconomic variables.
* According to the Medium Term Programme, the following measures are to
be taken to mitigate the adverse affects of the global downturn on the Turkish
economy:
a) Public investments will be directed to priority areas and made more efficient.
b) A comprehensive industrial strategy based on technological innovations will
be introduced.
c) The resources to transform production structures towards advanced and
information technologies will be increased.
d) Reforms in public expenditure policies will be continued. In this regard,
health services and expenditures will be made more efficient.
e) Tax base will be extended, and losses and frauds in collecting taxes will be
reduced.
f) Training will be accelerated in accordance with the demands of business.
* Given the global economic contraction in 2009, deteriorating domestic and
foreign demand and financing facilities, our GDP declined by around 4,7% in
2009. Since it will take time for trade flows and global economy to rebound,
recovery in economic activity is expected to be gradual.
* Forecasts reveal annual growth rates of 3.5%, 4% and 5 % for the period
2010-2012, respectively.
* In parallel with this growth perspective we expect that employment will
increase by 1.25 million over the following three years. This translates into a
certain decline in the unemployment rate by 2012 compared to the level of 14%
in 2009.
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IV) Conclusion
Despite all its negative consequences, the Turkish economy has shown the
resilience and strength in face of the global economic downturn.
Since September 2008, when the first signals of the global crisis appeared, the
international rating agencies have downgraded the credit notes of 37 countries,
while upgrading the credit notes of 17 countries. Among these 17 countries,
Turkey is the only country which has received credit rising for four times.
This is yet another proof that Turkey has pursued the right economic policies
during the period of global crisis. In the year 2010, we will enjoy a full recovery
from recession, leaving behind the difficulties faced in 2009. IMF and OECD
projected a growth rate around 4% for Turkey in 2010. But we believe our
economy will achieve higher growth rates than this figure.
As a G-20 member country we will continue to work harder to further
strengthen our national economy and make Turkey one of the leading industrial
nations in the world during the next decade.
Our goal is to reach a trade volume of 1 trillion dollars by the year 2023, when
we celebrate the 100th Anniversary of our Republic and be in the top 10
economies of the world.
By that year, we want to have 10 Turkish brands that are known all across the
globe.
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