Globalization and Turkish economy

Path of Turkish Economic Development Two transitions: From an agrarian to an industrial economy From protectionist to a neoliberal economy 1960s-70s: Planned economic development Import-substitution industrialization State economic enterprises 1980s-present Neo-liberal economic development Free trade and export oriented development Privatization

Neo-liberal transition 24 Jan 1980 decisions Devaluation and floating exchange rate Limits on state subsidies, and price controls Privatization and reform of state enterprises Lifting of import restrictions and export incentives August 1989: liberalization of the capital account Lifting restrictions on foreign direct and portfolio investment, and foreign exchange transactions Full convertibility of Turkish lira 1995 Turkey –EU Customs Union Agreement 2001 Independence of Central Bank

Turkey and Economic Crises- The Impact of Globalization 1958-59 Primarily caused by domestic imbalances Falling agricultural prices Appreciation of lira, trade deficit 1978-79 Oil shocks 1994 Over-dependence on short-term capital inflows Import boom, outflow of short-term capital 2000/2001 Recurrent crises in emerging markets Massive outflow of capital Problems in the banking sector 2008/9 Crisis of real sector Negative growth and rising unemployment

Key Patterns in Turkish Economic Development Combination of moderate growth with significant industrial transformation Falls behind East Asian countries High income inequality characteristic of Latin America Populist cycles and periodic fiscal crises Economic crises linked to military interventions With neoliberal transition, populist cycles and crises become more frequent. Financial openness makes economy vulnerable to external and domestic shocks Premature liberalization of the capital account Democracy deficit a source of economic and political instability

Post-2001 trends Strengths: Vulnerabilities Successful monetary policy, inflation-targeting, independent central bank Restrained fiscal policy, declining public debt/ GDP ratio Strong regulation and supervision of banking sector High level of growth After 2008-9 crisis, rapid resumption of capital inflows Vulnerabilities Fall in domestic savings High level of unemployment Low level of investment Appreciation of lira

Turkish Economy

FDI Inflows to Turkey

Europeanization and Turkish Economy

EU-Turkey Customs Union (1995) Free movement of industrial and processed agricultural goods Harmonization of: Customs policy Common Trade Policy Competition policy Intellectual property rights Public Procurement

Debating Customs Union Removal of protectionist measures Five year transition for automotive and some other sectors Restrictions on free movement of labor Growing trade deficit but decreasing trade deficit with EU. EU’s Free Trade Agreements with Third Countries Turkey lacks decision-making power Third Countries are only invited to conclude FTAs with Turkey Total trade (Turkey-EU) Trade deficit 1996 37 billion USD 12 billion USD 2007 129 billion USD 8 billion USD

Turkey’s exports (2009) A-EU COUNTRIES (27) 42 463 959 46,1 B-FREE ZONES IN TURKEY 1 754 567 1,9 C-OTHER COUNTRIES 47 897 557 52,0 1-Other European Countries 10 339 434 11,2 2-North African Countries 6 825 325 7,4 3-Other African Countries 2 472 091 2,7 4-North American Countries 3 228 880 3,5 5-Central America and Caribbean 513 012 0,6 6-South America Countries 581 988 1,2 7-Near And Middle Eastern 17 196 219 18,7 8-Other Asian Countries 5 884 397 6,4 9-Australia and New Zealand 308 446 0,3 10-Other Countries 547 765 Total 92 116 083 100

Turkey’s imports (2009) A-E.U COUNTRIES (27) 50 304 989 40,05% B-FREE ZONES IN TURKEY 857 682 0,68% C-OTHER COUNTRIES 74 446 848 59,27% 1-Other European Countries 23 366 352 18,60% 2-North African Countries 3 198 865 2,55% 3-Other African Countries 1 969 710 1,57% 4-North American Countries 8 502 365 6,77% 5-Central America and Caribbean 414 007 0,33% 6-South America Countries 2 039 862 1,62% 7-Near And Middle Eastern 8 730 529 6,95% 8-Other Asian Countries 25 561 621 20,35% 9-Australia and New Zealand 552 501 0,44% 8-Other Countries 111 035 0,09% Total 125 609 519 100,00%

EU-Turkey Accession Negotiations (2005 to present) 35 chapters, 1 chapter provisionally closed: Science and Research 12 chapters opened for negotiation: Environment Food Safety, Veterinary & Phytosanitary Policy Free movement of capital Information Society and Media Enterprise and Industrial policy Statistics Trans-European Networks Company Law Intellectual Property Law Consumer and Health Protection Financial Control Taxation

EU-Turkey Accession Negotiations (2005 to present) 8 blocked in 2006 for failing to extend CUA to NMS Cyprus. Blocked chapters: Free movement of goods Right of establishment and the freedom to provide services Financial services Agriculture and rural development Fisheries Transport policy Customs Union External Relations Chapters unofficially vetoed by France and Cyprus (10). 4 chapters possible to start negotiation

Europeanization of Turkish economy Harmonization of rules and policies, regardless of state of accession negotiations. High level of alignment in free movement of goods, customs union, competition policy as a result of customs union High level of alignment only in some open chapters, i.e. intellectual property law, enterprise and industrial policy. Little progress in some open chapters, i.e. free movement of capital Considerable progress in some closed chapters not part of CUA, i.e. energy.

Recent progress Adoption of European standards by TSE Financial transactions in all currencies Electronic communications law Foot and mouth disease and avian flu Reform of the electricity market Development of renewable energy Alignment of VAT and direct taxation Improvement of statistical data

Things that need to change… Mutual recognition principle Work permits for foreigners and nationality requirements for certain professions Real estate acquisition by foreigners 15% price advantage for domestic bidders in public procurement Legislation of state aid Laws on the establishment of Radio and Television enterprises Land identification and farmer registration system Agricultural support systems linked to production Central bank more independence. Reform of trade union legislation Health and safety of workers Equal opportunity for men and women

Turkey Should Withdraw From Customs Union YES NO Turkish markets are opened to competition in a non-reciprocal fashion. Hampers Turkey’s industrialization. Not necessarily increases TR chances for membership. Turkish foreign policy options are constrained as well. More opportunities for alternative economic arrangements with Russia Expands Turkish trade with the EU. Turkish manufacturers are able to import from Europe, parts, etc. It makes Tr membership more possible. Makes Turkey better able to attract foreign investment.

Global Economy and Turkey Membership Status: Joined in March 11, 1947 Stand-by Agreements Type Date of Arrangement Expiration Date Amount Approved SDR Million Amount Drawn SDR Million   Stand-By   May 11, 2005  May 10, 2008 6,662.04  Feb 04, 2002 Feb 03, 2005 12,821.20   11,914.00 Dec 22, 1999 15,038.40 11,738.96 of which SRF Dec 21, 2000 Dec 20, 2001 5,784.00