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 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: 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 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 Electricity Market Natural Gas Market Sugar Market Tobacco Market Telecommunication International Arbitration Financial Sector Reform 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.