Turkey's Reform Program In The 1980's example essay topic

Over the past two decades, Turkey has suffered repeated economic crises. The latest happened earlier of last year, when a devaluation of the currency had the people taking to the streets. Economic labels like budget deficit, high interest rates, price hikes, and contracting economy give mere ghostly hints of the pain the Turkish economy has suffered. Desperate for loans, the Turkish government has had consecutive stand-by agreements with the International Monetary Fund (IMF) and is currently implementing an IMF-backed reform program worth some $19 billion.

Last year, Turkey won approval from the IMF governing board for up to $10 billion in new loans. Indeed, the second half of 1999 will be remembered as "a period of reforms". In political, economic, and social terms, we have passed through many defining moments successfully. Meanwhile, Turkey's pace of industrialization continued and several major investments were realized.

The Turkish nation feels a growing self-confidence as they witness this country playing an increasingly forward role in its region, Europe, and beyond; they are very much aware of the huge potential inherent in Turkey's forthcoming future. This is one important reason why a series of important economic reforms leading to a stand-by agreement with the IMF received a wide-based support. Likewise, alongside other reform measures in the economic field, particularly the amendments to the constitution enabling foreign investors to seek international arbitration, social security, and tax reforms and the banking reform reflect this home-grown consensus about the need to modernize Turkey in every respect. It is well-understood that things have to change in this country which is now more tightly intertwined with the world than it has ever been, and that the present government spearheads the movement towards a more prosperous, stable, and secure future where Turkey is called for to fulfil a global role as it takes its place in the forefront of the twinned globalization and Eurasian processes. Within the framework of the IMF packages, Turkey is aiming to trim state bureaucracy, cut government spending, reform the financial system, privatize public sector enterprises, enhance transparency in economic management, improve governance in the public and private sectors and strengthen the social security net. Yet Turkey's problems persist today, even though it was among the first countries in the region to venture on to the track of reform.

Indeed, the reform Egypt began through its own stand-by agreement in the 1990's, had been preceded by Turkey's reform program in the 1980's. Beforehand, Turkey was a well-protected market and import substitution was the model for Turkish industrialisation. But beginning in 1980, a programme of economic reform was launched that aimed to decentralize the economy and strengthen market mechanisms. Within that framework, laws were developed to liberalis e foreign trade rules, the foreign exchange regime and activate the capital market. Turkey's deteriorating economy has provoked critics to ask whether the liberalisation which accompanied reform is in fact the culprit.

But according to many people Turkey's economic crisis is due to its failure to implement the necessary institutional changes needed for a market economy. This led the economy to slow. Foreign currency expenditure grew as a result of the liberalisation of imports, while revenues in foreign currency shrank. This led to the increased indebtedness of the country.

While many believe Turkey's ills stem from globalisation and the opening of the economy, the real causes are different. Turkey's problems are because of incompetent management and not because of liberalisation. Turkey would have suffered more if it had not adopted a free market economy". The weakness of Turkey's financial sector lies behind the current economic crisis which he described as "the worst in Turkish history. The reason why the Turkish economy is in a deep crisis is not globalisation, it is because Turkey has failed to execute many of the measures accompanying reform. Coupled with political instability, this has led to a crisis.

The structural measures which had to be implemented years ago are now being enforced, the reform of banks, social security, farming policy, and public procurement as crucial to economic improvement. Once that is done, the Turkish economy will have finally laid the necessary stones for a long-term and healthy growth strategy, while still embracing globalisation. One area where significant reform is happening in Turkey is in the financial sector. Banks are now responsible to independent and professional bodies. The changes in governance have also been complemented by three other steps: a complete financial restructuring of the system to protect depositors and creditors and permit parts of the system to return to life; ridding banks of unprofitable activities; and a toughening of supervision to ensure that past problems do not occur. The current economic slowdown is attributable to a mix of external and internal factors.

On the domestic front the "desolate" budget situation and political uncertainties have forced interest rates well above inflation. Along with the IMF's stabilization program the inflation rate went down to %39, however in year 2001 it is expected to reach between %50 - %55. Additionally Turkish Lira was devaluated only %15 all through year 2000. In the first quarter of 2001 the Turkish Lira was devaluated again by %40 and the IMF stabilization program has been abandoned. The result of this devaluation will be a high increase in the export of goods and services from Turkey. The majority of companies expect the economy to pick up in the second half of 2001, provided that the government is willing to implement reforms.

Overall growth in 2001 is expected to be less than year 2000. Turkey has maintained its scheduled debt repayments and has had no problem in obtaining new loans on the Eurobond market. A further positive factor is the relatively large foreign currency reserves held by the Central Bank. Since the middle of the year capacity utilization within Turkish industry has edged up.

On 10th December 1999 Turkey became a candidate to join to the EU. With the new economy program, further discussions will arise to become a member of the EU. In expectation of greater economic stability the rating agency Standard & Poor's has upgraded Turkey's long-term credit-worthiness from "stable" to "positive". This has been aided by the Turkish Central Bank's decision to abandon its established foreign exchange policies and to devalue the lira in line with inflation objectives.

Turkey is also accepted in the MEDA program as an EU candidate. This program includes: - support for economic transition: prepare for the implementation of free trade through increasing competitiveness with a view to achieving sustainable economic growth, in particular through development of the private sector. - Strengthening the socio-economic balance: the aim is to alleviate the short term costs of economic transition through appropriate measures in the field of social policy regional co-operation: the aim is to complement bilateral activities through measures to increase exchanges at the regional level. Despite the period of economic stagnation in 1998 and 1999, Turkey ranks as a country with sustained growth prospects. An especially positive factor is the new situation of political stability following the change of government. Blent Ecevit's package of reforms has now been initiated.

The three coalition parties have demonstrated that they can work together well. The agreement between Turkey and the IMF is particularly advantageous. According to News Brief No. 99/76 dated 23 November 1999, Turkey has received US$11.5 billion until today and IMF is still supporting the stabilization program of Turkey. Turkey's economic position has also been bolstered by its acceptance as an official candidate for EU entry. The decision to lower and / or abolish customs duties has significantly improved the country's external trade. Also the geopolitical location of Turkey is an undeniable advantage for external trade.

The subjects should have been focused on: - Co-ordination of economic policy and exchanges of information and opinions on interactions between wage developments and monetary, budget and fiscal policy through the framework of a macro-economic dialogue aimed at preserving a non-inflationary growth dynamic; - Further development and better implementation of the co-ordinated employment strategy to improve the efficiency of the labour markets by improving employability, entrepreneurship, adaptability of businesses and their employees, and equal opportunities for men and women in finding gainful employment, respecting, at the same time, the autonomy of the various concerned actors in their respective areas of responsibility; - Comprehensive structural reform and modernisation to improve the innovative capacity and efficiency of the labour markets and the markets in goods, services and capital. Taking into consideration the effects of high inflation and interest rates on Turkey's economic performance over the last 25 years, the government focused on an economic program which aims to free the country from inflation and enhance the prospects for growth and for a better standard of living for all parts of society. Thus, a disinflation and fiscal adjustment program was initiated on December 22, 1999 supported by a stand-by arrangement (SBA) with the International Monetary Fund. In view the arrangement, the inflation target for the year 2000 is, lowering the 12-month current price index (CPI) inflation rate to 25 percent and wholesale price index (WPI) inflation to 20 percent by end-December 2000. These inflation targets for 2000 also provide a good starting point for lowering both WPI and CPI inflation to 10-12 percent by end-2001, and finally to move to lower single digits (about 5-7 percent) by end-2002. The program rests on three pillars: Up-front fiscal adjustment, structural reform, a firm exchange rate commitment supported by consistent incomes policies.

Up-front fiscal adjustment is necessary because the weakness of public accounts is the ultimate factor behind high inflation. Structural reform is needed to make the fiscal adjustment sustainable, improve economic efficiency, and, through increased privatization receipts, facilitate the decline of public debt. A firm exchange rate commitment and consistent income policies are needed to lead inflation and interest rates down more rapidly, particularly in the first phase of disinflation. The strength of the program enhances the credibility of disinflation goals, and will in this way make it possible to achieve disinflation and growth at the same time.

Thus, while the primary fiscal position of the public sector will be tightened, growth will be spurred by increased confidence related to the; decline in inflation, the expected fall in real interest rates, the revitalization of the private credit market, sizeable interest payments that will continue to accrue to the private sector on the stock of public debt in circulation, the improvement in the external economic environment, as economic recovery is expected to strengthen in Europe and tourism receipts return to more normal levels. In line with the measures, GNP growth in the range of 5-5 1/2 percent in 2000, partly reflecting the rebound from the negative growth in 1999 is projected. GNP growth is expected to remain in the range of 5.6 percent in 2001-02. As economic activity picks up, the external current account deficit is projected to increase from 1/2 percent of GNP in 1999, to 1 1/2 -2 percent of GNP in 2000, with deficits of the same order of magnitude expected in 2001 and 2002. The performance of the program is measured through reviews made every three months in the first year and twice in the following years. Significant progress has been made towards achieving the program's goals.

Following the second review, progress in the implementation of the undertakings have become more apparent: - inflation in the first five months of 2000 fell to the lowest level since 1986, - the public debt-to-GNP ratio is falling, - interest rates have declined rapidly, - output growth is resuming, - industrial production accelerated sharply in the first four months of 2000, - in the first 5 months of 2000, production has increased by 3.3% in manufacturing, 9.2% in the electricity, gas and water sectors and decreased by 2.9% in the mining sector compared to the 5 month averages of the previous year. - fiscal performance in the first quarter of 2000 has been strong. The floor on the primary surplus of the consolidated government sector was met by a good margin - due to rigorous implementation of monetary and exchange rate policies in the first few months of 2000, the end-March performance criteria for net domestic assets and net international reserves of the central bank were met. - a protocol for consolidation of the debts and receivables of State Economic Enterprises in the energy sector has been put in effect. - progress is made in the improvement the public finance administration and ensuring its transparency. - there has been successful progress in efforts to reach the privatization target of USD 7, 6 billion in 2000. These results have been achieved through the strict implementation of the policies, which have garnered credibility in both domestic and international financial markets, as also reflected in upgrades by major credit rating agencies. The Credit Rating Agency Moody's, has announced that the credit note of Turkey will be reviewed with a possible upgrade.