Report: Gains of economy could be lost with complacency
Posted by meb at March 13th, 2008
A recent report by the International Strategic Research Organization (USAK) stated that Turkey had achieved significant success in strengthening its macroeconomic environment after the crisis of 2001, while also noting that the Turkish economy still has deep-seated structural problems and that the current rosy picture may change dramatically if economic officials remain complacent.
The report said Turkey had failed in two very important macroeconomic indicators, constituting the Achilles heel of the economy in 2008 — namely, poor performance in dealing with unemployment and the current account deficit.
USAK’s “From crisis to recovery: Quo vadis Turkish economy?” report noted that Turkey was hit by two severe financial crises in November 2000 and February 2001. Due to these crises, the Turkish socio-economic order was plunged into chaos, and the Turkish financial system came very close to collapse. However, the report said the crises created an opportunity, in the sense that a broad consensus was reached to solve the deep-seated structural problems and that significant changes materialized in the aftermath. In the post-crisis period, Turkey achieved significant success in strengthening its macroeconomic environment and hit the target ratios designed to comply with the International Monetary Fund (IMF) program. But Turkey didn’t perform as well in combating unemployment or the current account deficit. According to the report, after the 2001 crisis the regulatory agencies — the Competition Board, the Banking Regulatory and Supervision Agency (BDDK), the central bank, the Savings Deposit Insurance Fund (TMSF) and others — gained more autonomy and power to control financial institutions. The legal change in the status of the Turkish Central Bank after the 2001 crisis opened the way for the bank to conduct monetary policy by considering the conditions of the economy, not politics. After the change in the bank’s legal status, Turkey was better able to deal with inflation and the inflation rates came down significantly. In the post-crisis period, Turkey’s economy recovered due to the strong commitment to fiscal discipline and tight monetary policies. The cooperation between the government and the monetary authorities enabled Turkey to achieve undeniable success.
In the coming years, the retreat in global liquidity may cause further problems in financing the current account deficit, according to the report. The slowdown in the American and European economies in 2008, in turn triggering contraction in consumption levels, may exacerbate the slowdown in the growth performance of Turkey; and this could worsen the unemployment situation in Turkey.
The report noted that the macroeconomic and monetary success in the post-crisis period created the right conditions for rapid economic growth in Turkey. In this regard, it recommended that authorities continue their commitment to disciplined fiscal and monetary policies. Moreover, it noted that the macroeconomic achievements should be underpinned with further micro-reforms in economic, legal and educational fields. The report said Turkey has to deal resolvedly with the unregistered economy. “The government should put more emphasis on fighting the unregistered economy. The Turkish tax system should be redesigned in this regard,” the report noted.
The report also pointed out that the capital markets in Turkey are not mature enough to absorb external shocks, also noting that the institutional base is not strong enough. “These two hurdles should be overcome in the medium and long-term by implementing multi-faceted policies,” the report recommended. According to the USAK report, Turkey, by turning its face to the Middle East and improving its relations with the EU simultaneously, has started to establish more integrated and balanced links with the rest of the world. “The proactive foreign policies that Turkey has followed over the last six years have created spillover effects in the Turkish economy in terms of foreign trade and foreign direct investment [FDI],” it said, adding that Turkey should insist on full membership in the EU as well as pursue constructive diplomacy with Middle Eastern and Asian countries in order to increase trade diversification.
source: Today’s Zaman
Related posts: