State of the Turkish Economy Emre Deliveli TOBB ETU, October 11 2005.
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Transcript of State of the Turkish Economy Emre Deliveli TOBB ETU, October 11 2005.
State of the Turkish Economy
Emre DeliveliTOBB ETU, October 11 2005
e c o n o m i c p o l i c y r e s e a r c h i n s t i t u t ee k o n o m i p o l i t i k a l a r ı a r a ş t ı r m a e n s t i t ü s ü
State of the Turkish Economy Slide 2
Agenda
Overview of the Turkish economy Risks and priorities New anchor: EU What are the policy implications?
State of the Turkish Economy Slide 3
Turkish Economy: Basic Facts 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
State of the Turkish Economy Slide 4
Economic growth
0.0
50.0
100.0
150.0
200.0
250.0
300.0
350.0
1977 1980 1983 1986 1989 1992 1995 1998 2001 2004
GDP
(bill
ion
USD)
-15.0
-10.0
-5.0
0.0
5.0
10.0
15.0
GDP
ann
ual g
row
th ra
te
(%)
GDP growth rate
1977-2004 Gross Domestic Product (billion USD) and GDP growth rate
State of the Turkish Economy Slide 5
Turkish economy in the 1990s Despite huge potential, Turkish economy
significantly underperformed in the 1990s: 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%
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 Reform-
Corporate Restructuring
Basic Outcomes: Relative stability
Structural transformation process
Key: is it sustainable??
State of the Turkish Economy Slide 7
New policy framework after 2001
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
Electricity Market Natural Gas Market Sugar Market Tobacco Market Telecommunication International Arbitration
Public Sector Reforms Public Sector Reforms Public Sector Reforms Public Sector Reforms
Creation of Banking Regulation and Supervision Agency (2000)
Non-performing banks transferred to Savings Deposit Insurance Fund.
Transition to more bank activities.
Creation of Regulatory Creation of Regulatory AuthoritiesAuthorities
Creation of Regulatory Creation of Regulatory AuthoritiesAuthorities
Financial Sector ReformFinancial Sector ReformFinancial Sector ReformFinancial Sector Reform
State of the Turkish Economy Slide 8
A new process following the 2001 crisis?
Growth without inflation Interests rates are falling
down Productivity is rising
-60%
-40%
-20%
0%
20%
40%
60%
80%
100%
1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004
inflation
nominal interest
real interest rate
0.00
20.00
40.00
60.00
80.00
100.00
120.00
140.00
Oca.99 Oca.00 Oca.01 Oca.02 Oca.03 Oca.04 Oca.05
Industrial Production
Interest Rate
Inflation
Non-inflationary growth (1999-2005)
60,0
70,0
80,0
90,0
100,0
110,0
120,0
130,0
140,0
150,0
160,0
1996 1997 1998 1999 2000 2001 2002 2003 2004
EmploymentProductionLabor Productivity
economic program
Productivity and Employment TrendsInflation and Interest Rates
State of the Turkish Economy Slide 9
GNP (billion $)
Growth (%)
Inflation (CPI%)
Public debt (% of GNP)
Budget Deficit (% of GNP)
Exports (billion $)
Foreign Reserves (billion $)
2001
150
-9,4
70
95%
17
31
19
2004
300
9,9
10
65%
10
60
35
Turkey’s Recovery since 2001
Transformation Relative Stability Superior Economic Growth
State of the Turkish EconomySlide 10
Weighted Average Maturity of Domestic Borrowing Raised Through the Market
0
5
10
15
20
25
2002
Jan
2002
Feb
2002
Mar
2002
Apr
2002
May
2002
Jun
2002
Jul
2002
Aug
2002
Sep
2002
Oct
2002
Nov
2002
Dec
2003
Jan
2003
Feb
2003
Mar
2003
Apr
2003
May
2003
Jun
2003
Jul
2003
Aug
2003
Sep
2003
Oct
2003
Nov
2003
Dec
2004
Jan
2004
Feb
2004
Mar
2004
Apr
2004
May
2004
Jun
2004
Jul
2004
Aug
2004
Sep
2004
Oct
2004
Nov
2004
Dec
Months
Maturity
Stability Implies Higher Maturity
State of the Turkish EconomySlide 11
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?
Relative stability Structural transformation
political stability
Risks:
, but depends on risk management
State of the Turkish EconomySlide 12
Structural transformation risk
Growth sustainability risk Risk of policy credibility Governance risk
structural risks
triggering factor
Macroeconomic vulnerabilities
Inherent risks
State of the Turkish EconomySlide 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 EconomySlide 15
Market Shares in Retailing: Decline of Traditional Shops
0
5
10
15
20
25
30
35
40
45
50
Mini-markets Local supermarkets Retail Chains
State of the Turkish EconomySlide 16
Winners and losers in retailing
Winners Losers
End-points Organized chains
Groceries, traditional shops
Distribution Suppliers Wholesalers
Transportation
Logistic firms Individual truck-owners
Production Brand-names Informal producers (quality??)
State of the Turkish EconomySlide 17
Risk 2: Sustainability of the Growth Process (1)
0
20
40
60
80
100
120
140
160
180
200
ind
ex (
2000
=100
)
Unemployment (sa)
Production (sa)
Employment (sa)
State of the Turkish EconomySlide 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 EconomySlide 19
Risk 3: EU anchor is different from IMF anchor
IMF EUWhen you agree with the IMF, IMF is actively overseeing the performance.
When you start the negotiation process, EU Commission is passively overseeing the performance.
IMF stands by and actively participates as a guarantor of policy credibility.
EU stands apart and actively criticizes long afterwards.
State of the Turkish EconomySlide 20
Any anchor is not a guarantee for superior economic performance
FDI Inflows to Turkey (million US$)
0
500
1000
1500
2000
2500
3000
3500
4000
4500Authorized
Realized
Source: Foreign Investment Directorate, Treasury
State of the Turkish EconomySlide 21
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
without accompanying reforms
State of the Turkish EconomySlide 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 EconomySlide 23
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?
State of the Turkish EconomySlide 24
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
State of the Turkish EconomySlide 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 EconomySlide 26
Sustaining the reform:Social Policies to ease structural transformation
Social security reform: implementation of social assistance programs – poverty alleviation
Education reform Health reform Active labour market policies: bearing
the costs of skills training
EU Framework ?
State of the Turkish EconomySlide 27
Where’s the catch?
Governance structureFlexible and fast policy makingRule of law and credible
enforcement
State of the Turkish EconomySlide 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.