Upstairs, Downstairs

Turkey

Economic News

22 Jul 2010
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Last year's economic results for Turkey showed recent strong growth to be continuing - yet there have been losers as well as winners in the country's post-2001 comeback.



The latest IMF report on Turkey showed that there had been some impressive growth in GDP since 2002. This was the year immediately following the financial crisis of February 2001, which saw a number of banks crash and the currency go into freefall. Many lost their jobs, while the crisis also triggered a major IMF-backed bailout package, strongly linked to an economic restructuring programme.



Now, the IMF is predicting that GDP will rise to some $8393 per capita in 2006, a 24.6% rise on the $6737 recorded in 2002. GDP itself will hit $611.6bn, up from $448.9bn over the same period.



At the same time, in its letter of intent to the IMF back in December, the Turkish government said that the overall fiscal deficit had now dropped below 3% of GNP, thus meeting the EU's Maastricht criterion, while net public debt had fallen below 60% of GNP.



These are figures that only the most ardent optimist would have entertained five years ago. The year of 2001 recorded economic shrinkage of over 9%, rather than the 8-9% growth rates of the last few years. Now, the IMF reports, Turkey begins 2006 as the world's 19th-largest economy, two places in the table higher than when it started in 2005.



Yet for all this achievement, there are still a number of downsides.



Back in 2001, the country's middle class was hit much harder than it ever had been before by an economic crisis, with wages plummeting and widespread staff lay offs in the white-collar sector. Workers too suffered, while collapsing real wages and rising prices created a significant underclass. Many Turks blame the recent rise in crime directly on this - particularly when combined with the previous government's decision to amnesty many convicted criminals.



Given the growth rates, it would seem likely that problems of poverty might also now be declining. Yet the latest figures from the State Planning Department (DPT) show that this is regrettably not so.



The semi-official Anadolu Agency reported the DPT as saying on January 16 that the jobless rate was currently 9.8%. Many might question this statistic too, while few would doubt that in some areas of the country the rate is far higher. The DPT also had bad news when it came to its predictions, as it forecast at best a 0.2 percentage-point drop in the total by the end of 2006.



The immediate cause of the high unemployment rate, the DPT report said, was that the 1.7m jobs expected to be created between 2006 and 2008 would be easily absorbed by the number of new people entering the workforce, given Turkey's booming population. At the same time, the figures for 2005 - while starting out well - were crippled by some 1.23m job losses during the second half of the year.



One area in which many of those job losses could be found was textiles. The sector posted a 6.5% increase in exports last year, but despite this, Sanko Holding boss Abdulkadir Konukoglu told reporters last weekend, cheap Chinese, Indian and Pakistani products continued to squeeze Turkish firms, with many going under.



Also complaining of a tight time recently have been Turkey's farmers. Even before the bird flu outbreak, which has crushed poultry sales countrywide, the sector had been creaking under the strain. The Turkish Agricultural Association reported mid-January that the sector had lost some $4.3bn in state support since the IMF-backed economic programme began, leaving many of their products unable to compete with cheaper imports - often from the highly subsidised EU and US markets.



"Turkey's farmers", the report said, "are having a difficult time remaining competitive in the market, as neither quotas nor formal systems of support have been set up to help the sector."



Nonetheless, there is unlikely to be any change in the rigid fiscal and monetary structure under which the country currently labours.



The government's letter of intent promised the same 6.5% primary surplus as it has done since 2001. At the same time, the central bank is on track to begin inflation targeting this year, having achieved its 2005 year-end target of 8%.



The government also predicts GDP growth of 5% this year and in 2007, a slow down, if albeit an expected one.



Meanwhile, the 2006 budget has targeted revenue collection as a major priority, an aim that will see the social security and taxation systems in for some long-needed reform. At the same time, the costs of supporting a large social security deficit require either politically unacceptable cuts, or more investment. With the fiscal straight jacket in place, this can only come by boosting government revenues.



The IMF has also expressed continued concern over the current account deficit, which further widened in 2005.



"The problem here in part", the IMF's Anne Krueger said on January 10, "is that Turkey is simply becoming a much more attractive investment location... in part the current account deficit is being driven by capital inflows. The only problem is that they're getting large enough that one has to be somewhat concerned."



The government predicts that the deficit will reach 6% this year, dropping to 5.8% in 2007. The letter of intent placed responsibility for this on "notably higher oil prices and the lifting of international quota restrictions on textiles", alongside "buoyant capital inflows and the resulting strong lira".



At the same time, "The quality of external financing is improving, aided by successful privatisation of state-owned enterprises, increased foreign direct investment, and borrowing at longer maturities."



These are all key differences between now and 2001. The two periods are worlds apart, and whatever difficulties Turkey's economy may still have, clearly enormous progress has been made. The question now is how many places further up the ladder of world economies will Turkey be by this time next year.

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