Turkey's Economy example essay topic

Turkey's economy has weathered some spectacular pratfalls in the past, with a major economic crisis in 2001 almost bringing the country to its knees. What's different in 2004 from the previous 'recoveries' is how committed Turkey is to establishing firm economic footing once and for all. The government is swallowing the International Monetary Fund's painful economic medicine, making tough choices for fiscal discipline. Turkey's financial wunderkind, the 37-year old Minister of State for Treasury Ali Babacan credits a strong, popular and unified government with having both the clout in Ankara and the backing of the people to administer badly-needed shock therapy. 'During the last decade, stability has been a problem,' Babacan concedes.

'We had coalition governments and [frequent] early elections. 'But after the 2002 elections,' which ushered his faintly Islamic yet pro-Western Justice and Development Party to power under Prime Minister R. Tay yip Erdogan, 'we have a stable government, one the people have confidence in, which provides a much-needed base for economic recovery. ' Erdogan came to Ankara under heavy suspicion due to his past in radical Islamist politics. But as mayor of ungovernable Istanbul he won grudging praise from political opponents for his hard work on civic issues and muted Islamic rhetoric. As Prime Minister he has focused on bread-and-butter issues, leading with gusto the country's drive to join the European Union. Indeed, the JDP's acceptance of fiscal reform and pro-EU stance has rebuilt confidence in Turkey's ability to manage its finances once the IMF decamps.

'Our economic program was declared in detail before the election,' Babacan, a graduate of the Kellogg School of Management notes. 'We " re doing what we promised. ' It was only during the 1980's that Turkey ditched its closed command-economy, replete with Soviet-style Five Year Plans and huge state-run monopolies. The result was a roller-coaster of boom and bust, with hyperinflation and a Wholesale Price Index at 160% by the end of 1995 and a Nominal Interest Rate of 320% at one point.

Such shenanigans were offset by production in overdrive - growth through the turbulent '90's averaged 5% per year. But in the late '90's the Asian crises and the collapse of the Russian economy cost Turkey valuable export markets. Foreign exchange sought calmer waters, leaving the government to resort to offering 140% interest on its T-bills to finance its deficit. Annual inflation ran at a Weimar esque 102%. The IMF stepped in with a three-year stabilization program and a $4 billion jump start.

But the proposals embraced by Turkish leaders at the time promised quick gain with little pain and led - surprise, surprise - to an economic freeway crash in 2001, exacerbated by rising global energy prices and the massive 1999 earthquake in the Marmara region, one of Turkey's most productive, which sucked $10 billion out of the economy. Turkey's Central Bank Vice-Governor Dr. S. Fatah Ozatay says when the wheels fell off the Turkish economy in 2001, it was a wake-up call. 'After the crisis there were problems to be attacked - lack of credibility, and a floating rate regime which nobody was familiar with. [Exchange rates] had been managed before that. ' Determined to attack the root of the problem, Ozatay says, Ankara decided to make the independent central bank 'as transparent as possible to the markets.

We released long press releases each month to explain that month's inflation. In the background there were the new discipline and reforms, supported by the IMF, but a highly indebted country is vulnerable to the market. ' 'By August 2001 we had made some progress, then September 11th happened,' Ozatay says. 'Since then we " ve been moving in the right direction, the markets realize that fundamentals are now in place and the country's moving forward. ' Turkish economic projections, once good for a laugh, are taken seriously nowadays. For 2004 the government's target inflation rate is 12%, and it's now expected to come in at 12.5% for the year.

Indeed, although the JDP seems determined to lay the painstaking groundwork necessary for sustainable economic growth, there remains significant work to be done. Broadening the tax base and decreasing the punitive tax rates to bring the huge unrecorded economy above ground are still needed - some analysts estimate that as much as 60 percent of Turkish economic activity is conducted off-book. Social security needs a major overhaul. That there is exactly one foreign bank doing business in Turkey - Britain's HSBC - speaks eloquently of the Turkish banking sector. Ozatay agrees that there is work to be done, but whereas in the past excuses would be made and problems papered over, he's candid that the fault is mostly Turkey's. Accepting responsibility for a problem is, after all, the first step to solving aforesaid problem: Babacan points to the recent victories in Turkey's battle against chronic high inflation.

'We have record low [inflation] now and the trend is for lower. We have tight fiscal and monetary policy, an independent central bank. We also need to reduce public debt stock. At end of 2001 it was 92 percent, it's now 71 percent. ' As with so much else in Turkey today, the carrot for macroeconomic reform is European Union membership. 'Politically we " re taking EU criteria as an anchor for the reform process,' Babacan says.

'That makes the reforms in Turkey irreversible. ' Years ago Turkey brought their laws into compliance with EU Customs Union regulations. Today over half of Turkey's trade is with European countries. Analysts shrug off the November terrorist car bombs targeting the British Consulate in Istanbul, pointing out that such terrorism rarely has long-term economic effects. One reason Turkey was targeted, many say, is that it is gradually edging away from other Muslim nations in the Middle East - indeed, its closest Middle Eastern ally, militarily and economically, is fellow non-Arab state Israel.

Prime Minister Erdogan contemptuously blames Muslim nations themselves for their economic shortcomings, calling on them to look up from the Qu " ran, follow Turkey's example and modernize their way to prosperity. He is fond of saying that money and economics have no religion. This attitude bodes well for Turkey's future.