Transcript Slide 1

State of the Turkish Economy
Emre Deliveli
TOBB ETU, October 11 2005
State of the Turkish Economy
Agenda
 Overview of the Turkish economy
 Risks and priorities
 New anchor: EU
 What are the policy implications?
Slide 2
State of the Turkish Economy
Turkish Economy: Basic Facts
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GDP US$ 300.6 billion (end- 2004)
GDP per capita US$ 4,187
Highest growing country in world with 9.9 percent growth in 2004
Population 71.3 million, population growth rate 1.5 percent
Population living in urban cities 60 percent, urbanization rate 32
percent
Labor force 24.3 million
Labor force participation rate 48.7 percent
Unemployment rate 10.5 percent
Life expectancy 68.7 years
Infant mortality 3.8 percent
Literacy rate 88.3 percent
Gini coefficient 0.42
Percent of population living under 1$ per day 0.2
Slide 3
State of the Turkish Economy
Slide 4
Economic growth
GDP (billion USD)
350.0
GDP
15.0
growth rate
300.0
10.0
250.0
5.0
200.0
0.0
150.0
-5.0
100.0
GDP annual growth rate
(%)
1977-2004 Gross Domestic Product (billion USD) and GDP growth rate
50.0
-10.0
0.0
-15.0
1977
1980
1983
1986
1989
1992
1995
1998
2001
2004
State of the Turkish Economy
Turkish economy in the 1990s
 Despite huge potential, Turkish economy significantly
underperformed in the 1990s:
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boom and bust cycles in growth
high and chronic inflation
high public sector deficit
fiscal indiscipline
high levels of uncertainty (political and macroeconomic)
very high interest rates
 three economic crises, internal confict, 1999 earthquake…
 the 2001 economic crisis = GDP shrank by 10%
Slide 5
State of the Turkish Economy
Slide 6
Putting risks into perspective: What has
Turkey done so far?
Basic elements:
 Monetary Discipline
 Fiscal Discipline
 Public Administration
Reform
 Banking Sector ReformCorporate Restructuring
Basic Outcomes:
 Relative stability
 Structural
transformation
process
Key: is it sustainable??
State of the Turkish Economy
Slide 7
New policy framework after 2001
Public Sector Reforms
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Granting Central Bank Full
Independence
Ensuring Universality of the Budget
Public Finance and Debt Management
Law
Indirect Tax Reform (Special
Consumption Tax Law)
Public Procurement Law
Private Pension Law
Civil Service Reform
Pension Reform
Reform on SEEs’ Governance
Direct Tax Reform (Second Phase of Tax
Reform
Tax Administration Reform
Public Financial Management and
Financial Control Law
Creation of Regulatory Authorities
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Electricity Market
Natural Gas Market
Sugar Market
Tobacco Market
Telecommunication
International Arbitration
Financial Sector Reform
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Creation of Banking Regulation and
Supervision Agency (2000)
Non-performing banks transferred to
Savings Deposit Insurance Fund.
Transition to more bank activities.
State of the Turkish Economy
Slide 8
A new process following the 2001 crisis?
 Growth without inflation
Non-inflationary growth (1999-2005)
140.00
 Interests rates are falling
120.00
100.00
down
 Productivity is rising
Industrial Production
Interest Rate
80.00
Inflation
60.00
40.00
20.00
0.00
Oca.99
Inflation and Interest Rates
Oca.00
Oca.01
Oca.02
Oca.03
Oca.04
Oca.05
Productivity and Employment Trends
100%
Employment
Production
Labor Productivity
160,0
80%
150,0
60%
140,0
130,0
40%
economic program
120,0
20%
110,0
100,0
0%
90,0
inflation
-20%
80,0
nominal interest
-40%
70,0
real interest rate
60,0
-60%
1996
1978
1980
1982
1984 1986
1988
1990
1992
1994
1996 1998
2000
2002
2004
1997
1998
1999
2000
2001
2002
2003
2004
State of the Turkish Economy
Slide 9
Turkey’s Recovery since 2001
Transformation  Relative Stability  Superior Economic Growth
2001
2004
GNP (billion $)
150
300
Growth (%)
-9,4
9,9
70
10
95%
65%
Budget Deficit (% of GNP)
17
10
Exports (billion $)
31
60
Foreign Reserves (billion $)
19
35
Inflation (CPI%)
Public debt (% of GNP)
Months
2004Dec
2004Nov
2004Oct
2004Sep
2004Aug
2004Jul
2004Jun
2004May
2004Apr
2004Mar
2004Feb
2004Jan
2003Dec
2003Nov
2003Oct
2003Sep
2003Aug
2003Jul
2003Jun
2003May
2003Apr
2003Mar
2003Feb
2003Jan
2002Dec
2002Nov
2002Oct
2002Sep
2002Aug
2002Jul
2002Jun
2002May
2002Apr
2002Mar
2002Feb
2002Jan
State of the Turkish Economy
10
5
0
Slide 10
Stability Implies Higher Maturity
Weighted Average Maturity of Domestic Borrowing Raised Through the
Market
25
20
15
Maturity
State of the Turkish Economy
Slide 11
, but depends on risk management
Relative stability
Structural transformation
political stability
Risks:
1. Need for above average growth rates for net
job-creation.
2. Risks due to structural transformation.
3. Need for a credible and longlasting anchor:
EU?
State of the Turkish Economy
Slide 12
Inherent risks
 Structural transformation risk
 Growth sustainability risk
 Risk of policy credibility
structural
risks
 Governance risk
 Macroeconomic vulnerabilities
triggering
factor
State of the Turkish Economy
Slide 13
Risk 1: Structural Transformation of the Turkish
economy An example from retailing
A projection for the future: Comparison
of Spain and Turkey
State of the Turkish Economy
Slide 15
Market Shares in Retailing:
Decline of Traditional Shops
50
45
40
35
30
25
20
15
Mini-markets
Local supermarkets
Retail Chains
10
5
q3
20
04
q2
04
q1
20
04
q4
20
20
03
q3
03
q2
20
03
q1
20
20
03
q4
02
q3
20
02
q2
20
20
02
q1
02
q4
20
01
q3
20
20
01
q2
01
q1
20
20
01
q4
20
00
q3
00
q2
20
00
q1
20
00
20
19
99
q4
0
State of the Turkish Economy
Slide 16
Winners and losers in retailing
End-points
Distribution
Winners
Losers
Organized
chains
Suppliers
Groceries,
traditional shops
Wholesalers
Transportation Logistic firms
Production
Brand-names
Individual truckowners
Informal
producers
(quality??)
State of the Turkish Economy
Risk 2: Sustainability of the Growth
Process (1)
200
Unemployment (sa)
Production (sa)
180
Employment (sa)
160
120
100
80
60
40
20
0
20
00
Q
1
20
00
Q
2
20
00
Q
3
20
00
Q
4
20
01
Q
1
20
01
Q
2
20
01
Q
20 3
01
Q
4
20
02
Q
1
20
02
Q
2
20
02
Q
3
20
02
Q
4
20
03
Q
20 1
03
Q
2
20
03
Q
3
20
03
Q
4
20
04
Q
1
20
04
Q
2
20
04
Q
3
20
04
Q
4
index (2000=100)
140
Slide 17
State of the Turkish Economy
Slide 18
Sustainability of the Growth Process (2)
 Productivity increase not sustainable?
 Current Account
 Imports of intermediate and capital goods are
increasing… more than exports
 Rising Trade Intergration has not led to an adequate
Financial Structure
 …yet patterns & trends seem promising
 FDI inflows
 Unemployment
State of the Turkish Economy
Slide 19
Risk 3: EU anchor is different from IMF
anchor
IMF
EU
When you agree with the
When you start the
IMF, IMF is actively
negotiation process, EU
overseeing the performance. Commission is passively
overseeing the performance.
IMF stands by and actively EU stands apart and
participates as a guarantor actively criticizes long
of policy credibility.
afterwards.
State of the Turkish Economy
Slide 20
Any anchor is not a guarantee for superior
economic performance
FDI Inflows to Turkey (million US$)
4500
Authorized
Realized
4000
3500
3000
2500
2000
1500
1000
500
20
01
20
02
20
00
19
98
19
99
19
96
19
97
19
95
19
93
19
94
19
91
19
92
19
90
19
88
19
89
19
87
19
85
19
86
19
83
19
84
19
82
19
80
19
81
0
Source: Foreign Investment Directorate, Treasury
State of the Turkish Economy
without accompanying reforms
 Investment Climate Problems:
 Tax System and Administration
 Labor Regulations
 Informal Economy and Anti-competitive practices
 Access to and Cost of Finance
 Access to Land
 Local Administrative Barriers (i.e. Licenses and permits)
 Corporate Governance and Restructuring
 Low Technological Base
 Lack of Innovative Capabilities
 Lack of Skills
Slide 21
State of the Turkish Economy
Slide 22
A doomsday scenario
 Economic program lacks in new job-creation.
 Losers from structural transformation attack
the economic program.
 Expansionary monetary policy and giving up
fiscal discipline to increase domestic demand.
 National unrest against EU.
 Lose of anchor, political turmoil.
 Triggering factors become active
State of the Turkish Economy
Framework for sustainability of reforms
 IMF program only provides minimum
requirements.
 More is neccesary for sustaining a
politically viable reform program.
How to support the new modus operandi
and enhance the competitiveness of the
Turkish corporate sector?
Slide 23
State of the Turkish Economy
Reforms on the public side
 Reducing costs: competition in
infrastructure markets.
 Gaining legal flexibility: reform in
bankruptcy and liquidation laws.
 Localization – Regional Development
 Monitoring and regulating state aids
Slide 24
State of the Turkish Economy
Slide 25
Changing patterns of behaviour on
corporate side
 Technological transformation
 Skills-training for the new technologies
 New governance structures
Outcomes:
• Sustaining
productivity gains
• Keeping high
dynamism of firms
We need:
• Foreign direct
investment
• Better financial
intermediation for
domestic firms
State of the Turkish Economy
Sustaining the reform:Social Policies to
ease structural transformation
 Social security reform: implementation of
social assistance programs – poverty
alleviation
 Education reform
EU Framework ?
 Health reform
 Active labour market policies: bearing the
costs of skills training
Slide 26
State of the Turkish Economy
Slide 27
Where’s the catch?
 Governance structure
 Flexible and fast policy making
 Rule of law and credible enforcement
State of the Turkish Economy
Slide 28
Conclusion: A policy agenda
 We should have policies targeted to higher
growth rates, rather than being afraid of it.
 We should have more than IMF program to
attain above-normal growth rates:
More reforms targeted to corporate sector.
A stronger internal commitment to EU anchor.
Introduction of social policies.