Turkey and its Economy: A Glance at the Past, Present and Future
18/06/2013 | FxM – Evan Brock Gray
With all the unrest that has been going on during the last few weeks in Turkey, it´s usually a good idea in times of difficulty to go back, do some fact-finding research and make some clear conclusions about what´s going on so you can understand the “why” and the “what´s next”, in this case, for Turkey.
Following the disintegration of the Ottoman Empire in the 1920´s and the Turkish War for Independence (in which WWI allied forces were defeated), the new Republic of Turkey entered into an area called Kamelism during which many economic, political and social reforms took place under the beloved national leader Mustafa Kemal Atatürk. The “father of Turks” held power as President until 1938 during which time he enacted laws to enshrine complete national sovereignty, to undo of the old ties of Islam to the government, to create of the Turkish Central Bank and to give rights to minorities, like allowing women to vote and hold office. His symbolism of the “six arrows” represented the fundamental principles that have shaped the Turkey we know today: Republicanism, Nationalism, Populism, Secularism, Statism and, lastly, Reformism/Revolutionism.
Economic development in Turkey during the last few decades has been impressive and very volatile. Jumping in and quickly out of recessions many times since the 1980´s, for the most part GDP growth rates (since 2000) have been above 5% on average (World Bank) and as high as 9.4% except in 2001 when the country had to request a bailout from the IMF and in 2009 during the financial crisis. Its unemployment rate remained relatively steady during the 2000s just above 10%, a percentage not all that uncommon for up-and-coming economies, and is currently decreasing. Its modern economy today is vibrant and productive with a balance between industry, service sectors and agriculture. Privatization measures over the last 10 years in industrial, banking, transport and communication sectors fair well with an increasing middle-class sense of entrepreneurialism. Of course its own energy and natural resources and a geo-strategic position provide Turkey with a comparative advantage for trade with Europe.
However, it seems the Turkish miracle growth model is about to hit some rough waters; debt leveraging has been the bane of many countries and companies recently. It was been running several tens of billions of dollar deficits in its current account balance for the last 10 years. Private short-term debt is expected to be above $200 billion this year which would be one fourth of the size of the economy. The budget deficit increased in 2012 and there has been more spending than income since 2008. Turkey should be wary of this especially because of the recent experiences in Greece, Ireland and Spain, where this type of debt spending brought these three economies to the brink of disaster as soon as their respective housing market bubbles burst and tax revenues stopped coming in.
The 100th anniversary of Republic and the possibility to host the 2020 Olympic Games have given a reason to Prime Minister Recep Tayyip Erdogan´s government to begin huge public investment project to the tune of $400 billion. This is an opportunity to modernize infrastructures and create employment but because of the lack of budget surpluses, the bill will probably be footed by more borrowing and, hence, the continuation of the “vicious-debt-cycle”. The protests that have been taking place this week in Istanbul in Taksim Square started because of a governmental proposal to remove the park and build a shopping mall and high-rise apartments. It seems clear that this type of urban facelift was not a part of the agenda of many young and more than ever politically active Turks. There are restrictions enacted by Erdogan´s government that have the youth (and ordinary citizens as well) upset like, for example, restrictions on the sale of alcohol or blurred images of alcoholic beverages on some television stations but probably most infuriating is the different types of internet censorship and vigilance over social networks. Either that or watching your Prime Minister go on television (with a huge international audience at this point) to ask the parents of the protestors to go and “please take their sons and daughters by the hand and bring them home” as if they were little, misbehaving children. Think about it, how would you feel if your president spoke about you like that?
His police force definitely did not treat protestors like children when they were tear-gassed, arrested by the hundreds and labeled “terrorists” by the Erodgan government if they dared to return to the square (which they did). This authoritarian approach by the Turkish PM contrasts with that of other political leaders in similar situations, such as: PM Mariano Rajoy of Spain who did not meet with representatives of the protestors and was virtually unseen during the height of mid-May protests in 2011; and Brazilian President Dilma Rousseff, although concerned, has said she considers the current, massive protests going on in her country to be legitimate and appropriate in a democracy if they are peaceful while also saying its normal for the youth to protest, probably remembering her own past as a political dissident.
The idea of Turkish “sec
The protests, and the violent means the police used to break them up, caused mayhem for Turkish markets whose main stock exchange index, the XU100, has dropped 20% in three weeks. The unfortunate consequences of this instability could scare off foreign investment, leading to less outside income and more outside borrowing. However, with a weaker currency than the dollar and the euro to attract export opportunities, more political stability than its neighbors to the east, its own central bank with large emergency reserves and, above all, a well-known history of being able to successfully come out of economic downturns are all reasons that give hope that, in the end, Turkey won´t get roasted.