2008_10_SRP_CornellKaraveli_Turkey

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Svante E. Cornell and Halil Magnus Karaveli
Bank economist Kemal Dervis, who was Minister of Economy in the centrist
government in 2002, it was followed very closely by the AKP government
once it came to power toward the end of that year.
The prospect of EU accession has been the political facilitator of responsible
economic policies, coupled with the political stability of a single-party
government under the AKP. Whether Turkey will continue along the
current, positive path of economic progress is hence dependent partly on
global trends – such as the current status of the world economy – and
domestic trends, especially the prospects of political stability. That said,
Turkey’s economy has substantial problems in terms of the current account
deficit, which in the past five years amounted to a total of $118 billion.
Likewise, debt has been rising: domestic debt grew by 70 percent from 2002 to
2007, while foreign debt spiked by 83 percent in the same period. While debt
figures need to be seen in the context of rapidly growing GDP, they are
nevertheless high. Total debt in 2007 stood at half a trillion dollars. Likewise,
Turkey has seen a growth in its foreign trade deficit, both in absolute and
relative terms. In 2007, the rate of exports to imports was 62 percent, 8 points
down from 2002.
On the basis of the current trends of the past decade, most economic
forecasts have suggested that Turkey stands a good chance of continuing to
be a relatively rapidly growing economy in the coming decade and beyond.
Such positive scenarios assume that Turkey’s integration with Europe will
continue, and that a modicum of political stability will prevail over the
decades. In this scenario, the major opportunities for continued integration of
Turkey’s economy with Europe are foreseen, most specifically in the banking
sector and a continued growth of Foreign Direct Investment, which has yet,
certainly in per capita terms, failed to reach the levels of the Central and
Eastern European countries.
Based on such a scenario, Turkey’s economy could grow by an average of
over 4 percent until 2020, translating into a GDP per capita growth of close to
3 percent annually in a good scenario. That would bring Turkey to a GDP
per capita of us$11,000 in purchasing power parity terms by the end of the
next decade, comparable to Poland in 2003. Meanwhile, alternative scenarios
are also plausible. Scenarios that see a return to the political instability and