Reports - United Nations Development Programme

COUNTRY EVALUATION: ASSESSMENT OF DEVELOPMENT RESULTS – TURKEY
14
2002, and the AKP party leader, Recep Tayyip Erdoğan,
took over as Prime Minister in early 2003, the
Government has consistently pursued political and
economic stability and reform in the quest for the
overarching national goal of Turkey’s accession to the EU.
As a result, the AKP has been able to strengthen its
popular support and it scored a clear victory in the
municipal elections in April 2004. At this point it is
expected that AKP will continue in power until at least
the next national parliamentary elections in 2007.
B. A VOLATILE ECONOMY
Turkey is a large middle-income country, with purchasing
power parity GDP per capita at about USD 5,890 in
2001. 3 Some two-thirds of its population of almost 70
million lived in urban areas in 2001. Agriculture accounts
for 16% of its GDP, industry for 24%, and services for
60%. Turkey’s economy grew at an average annual rate of
4% between 1965 and 2001, with its real per capita GDP
growing at just under half that rate due to rapid
population growth. This long-term growth performance
makes Turkey less successful than many of its competitors
among the dynamic, emerging market economies located
mostly in East and Southeast Asia and Latin America.
Korea, Thailand and Malaysia grew two to three times
more rapidly in per capita terms over the same period,
and Brazil, India and Chile also outperformed Turkey,
with average annual per capita GDP growth rates well
above 2%. 4
A key reason for Turkey’s less than stellar economic
performance has been the fact that its growth was highly
volatile over the last two decades with repeated booms
and busts, accompanied by persistently high inflation. At
the core of this pattern of instability were the growing
fiscal imbalances in Turkey, especially in the 1990s, with
high and growing public sector deficits, borrowing
requirements and hence substantial increases in total
public debt. 5 In addition, substantial hidden public
liabilities were accumulated in an unsound banking sector,
with many large and inefficient public banks and poorly
supervised private banks becoming increasingly insolvent.
Matters came to a head in the late 1990s after the
1997-98 financial crisis in East Asia and Russia had
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3. UNDP, “Human Development Report 2003”, p. 238. Turkey was marginally ahead of
Romania with a PPP GDP per capita of USD 5,830. At current exchange rates,
Turkey’s GNI per capita was about USD 2,500 in 2002, according to World
Development Indicators.
4. The World Bank, “Country Economic Memorandum”, October 2003; and The World
Bank, “Turkey Country Brief”, September 2003.
5. Ibid.
severely reduced the trust of international capital markets
in emerging market economies. The knock-on effect of
the regional and worldwide economic slowdown exposed
Turkey’s weak macroeconomic fundamentals. Two major
earthquakes during the second half of 1999 further
damaged Turkey’s outlook, resulting in a severe economic
contraction that year.
Recognising the long-term unsustainability of the
economy’s trends, the Turkish authorities initiated a major
economic reform programme in 1999. This included an
exchange-rate based disinflation programme and
encompassed ambitious structural reforms, including a
banking sector workout, fiscal and public sector reforms,
as well as agricultural and energy sector reforms and
privatisation. Initially, confidence in the Turkish economy
rebounded and it recovered dramatically in 2000.
However, accumulated financial imbalances, political
wrangling among the Government coalition partners and
continued international market jitters plunged Turkey
back into economic crisis starting in late 2000. During
2001, Turkey’s economy contracted by 7.5%, while the
public debt-to-GDP ratio reached almost 100%. This led
the Government in May 2001 to abandon the exchange
rate anchor and to announce a new, even more ambitious
economic programme involving dramatic fiscal stabilisation,
further banking, energy and agricultural sector restructuring,
and an intensified privatisation and public sector
reform programme. These macroeconomic and structural
reforms were complemented by efforts to strengthen the
social safety net to help protect the most vulnerable
population groups from the negative impact of the
CHART 2.1:
Growth Rate (%)
10
8
6
4
2
0
-2
-4
-6
-8
-10
1997
1998
1999
Source: World Bank, 2003 estimated
REAL ANNUAL GDP GRO WTH
2000
2001
2002
2003