Turkey Summary

Introduction

Turkey's economy has been boosted recently by the American rebuilding of its neighbor Iraq, having made deals with the United States Coalition Provisional Authority (CPA) in Iraq worth $200 million, including $110 million in transport equipment like tanks and railway cars. [1]

Though the US was aggrieved by the Turkish government's hesitation to commit military force to its operations in Iraq, stemming from its simultaneous roles of neighbor to Iraq and ally to its enemy, the US has historically played a facilitating role in the deals and disputes between the Turkish government and the international organizations such as the IMF, World Bank, UN and WTO, on behalf of Turkey.

Turkey and the IMF

With consistent GDP growth of 5.4% during the 1980s and 4.1% in the period 1990-98, Turkey gradually improved its position in the global economy; however, domestic political turmoil after 1998, repercussions of the Marmara earthquake in 1999, and the compounding effects of Russia's financial crisis abruptly led the Turkish economy to near collapse by 2000. [2] The government reached a US $10 billion agreement with the IMF in December 2000, as negative GDP growth and heavy inflation continued. The Turkish lira was floated in February 2001, leading to rapid devaluation and increased fiscal discipline. Indicative of the IMF's satisfaction with the government's handling of the economy, Turkey's stand-by credit was increased to US $ 19 billion in May 2001 in an effort to strengthen confidence, reduce inflation, buffer government revenues against the ongoing crisis, speed up banking reform and support structural reforms. [3]

External Trade

Turkey's principal exports are textiles and clothing, followed by agricultural products, iron, steel and machinery. Its largest trading partner is Germany, followed by the US and Italy. Having expressed admiration for achievements made by the Chinese through following policies of reform and trade openness, the Turkish government plans to set up special economic zones similar to the Chinese model, while also expanding trade with mainland China. [4] Turkish textile producers have recently joined with the American textile industry in a last-ditch effort to push for an extension on global textile quotas that are set to expire in 2005. [5] The expiration of these quotas will be highly beneficial to the Chinese textile industry, which currently exports a third of the global trade in clothing and textiles, and potentially devastating to the exports of smaller, more inefficient countries who have used the protection of textiles as a way to get a foothold into the global market. However, the Agreement on Textiles and Clothing which is set to expire contains the clause that 'there shall be no extension of this Agreement,' so the prospects for this effort seem unpromising. [6]

Turkey joined a customs union with the EU in 1995 and also entered into the Black Sea Economic Co-operation Organization (BSECO) with 11 of its other neighbors: Albania, Armenia, Azerbaijan, Bulgaria, Georgia, Greece, Moldova, Romania, Russia, Turkey and Ukraine. In April 2003, the Turkish government agreed to begin negotiations with Iran on a preferential commerce system, whereby protection rates would be cut gradually over a transition period in accordance the Generalized System of Preferences (GSP) of the European Union. Turkey is also pursuing a trade agreement with Saudi Arabia, with the aim to increase exports of textiles and clothing, glass, plastic, finished products and semi-finished products. [7]

Agriculture

Turkey's agricultural sector is the largest in the OECD, accounting for about 17% of GDP, 20% of exports and 40% of the labor force. [8] Its produce includes tobacco, cotton, grain, olives, sugar beets, pulses (leguminous plants), citrus and livestock. The government employs multiple incentives to promote exports such as output and input subsidies, tax credits, guarantees, and insurance programs, and an average 25% tariff. These programs are being scaled back in a 2001-05 reform plan, to be replaced by less distortionary direct-support programs, in order to comply with EU and WTO standards and relieve the burden on the Turkish government. [9]

Wheat and sheep constitute the mainstays of Turkish agriculture, and the country expects to become a leading cotton producer over the next decade. The irrigation efforts of the still incomplete Southeastern Anatolian Project, which involves a huge area including parts of Syria and Iraq and about 10% of Turkey's landmass and one of the most ambitious regional development programs in the world, have already contributed much to boosting output. [10] Fruit and vegetable production has also increased, with simultaneous growth in regional crops such as hazelnuts, tea and tobacco. Turkey currently produces 70% of the world's supply of hazelnuts, the production of which is dominated by Fiskorbirlik, the state run hazelnut farmers' co-operative. [11]

Privatization and Tourism

Though Turkey's industrial sector is still dominated by large state-owned industries, the government continues to follow a strategy of gradually reducing the economic role of the state, and acceleration in the rate of privatization is expected. The country's non-state industrial sector is dominated by a number of family-run conglomerates, including one for textiles.

The tourism industry has been greatly damaged by terrorism and involvement in war since the late 1990s. In February 2003, the once hostile neighbors Greece and Turkey signed an agreement to promote tourism in the Aegean Sea as part of an effort to improve inter-state relations. [12]

Conclusion

With little shock-absorbing capacity, Turkey stands to have been the Middle Eastern country most affected by war in Iraq. As an oil importer, it suffered from escalating petrol prices, while the war cost it billions in Iraqi trade. Much of Turkey's unpredictable trade positions and policies will continue to depend upon the events that transpire between its American ally and its Iraqi neighbor. Structural causes for a continued fragile economic situation include politico-economic instability, high external debt, restrictions on foreign direct investment and slow progress in the implementation of its privatization programs, of which there have been four since 1998. [13] Though it received a temporary boost from American defense contracts, Turkey needs to continue to improve its economic conditions to attract enough foreign investment and promote enough domestic industry to counteract the blows it will suffer from losing textile quotas and scaling back its own agricultural support in compliance with the WTO.

Last updated June 2004

[1] "Turkey Signs Agreements to Supply Transport, Oil Equipment to Iraq," BBC Monitoring International Reports, 13 March 2004.
[2] "Turkey Secures New IMF Package," IPR Strategic Business Information Database, 17 May 2001.
[3] Country Profile, Janet Matthews Information Services. Quest Economics Database. Europe Review World of Information. 3 October 2002.
[4] "Turkey hopes to expand trade to China." Xinhua News Agency. 14 January 2003.
[5] "U.S.-Turkey Alliance Pushes for Quota Extension on Textiles" HFN, 22 Mar 2004.
[6] "WTO: Another crisis in the offing?" Rediff.com, 5 May 2004.
[7] Turkey, Saudi Arabia to Increase Trade Volume Soon - Premier," BBC Monitoring International Reports, 17 Jan 2004.
[8] CIA, World Factbook 2002.
[9] Investment in Turkey: GAP project, http://www.treasury.gov.tr/english/ybsweb/gap.htm.
[10] Investment in Turkey: GAP project, http://www.treasury.gov.tr/english/ybsweb/gap.htm.
[11] Country Profile, Janet Matthews Information Services.
[12] "Greece and Turkey agree to increase ferry services," Deutsche Presse-Agentur, 5 Feb 2003.
[13] WTO Policy Report on Turkey, 2003.