1. Emre Deliveli Turkish Reforms And Their Social Implications April 2013

2. Outline 1.Summary of Turkish Reforms 2.And their social implications

3. Brief history of reforms in Turkey 1920s: Reforms aimed at westernization – (Secularism, civil law etc.) 1940s: Transition to democracy – (Multi-party politics) 1950s: NATO membership – (Western security alliance framework) 1980s: First generation economic reforms – (Price reforms, free trade) 2000s: EU reforms + completion of first generation reforms – (Improvement in democratic standards) – (Fiscal discipline, macroeconomic stability) How Mediterranean is Turkish Economy?Slide 3 New political elite, new energy Second generation reforms (institutions & skills) ?

4. Key dynamic: rapid urbanization (= main source of economic growth) Urban population as a percentage of the total population in Turkey and EU countries, (%), 1960-2010 Source: World Bank, World Development Indicators How Mediterranean is Turkish Economy?Slide 4

5. Summary of Turkish Reforms 1.The Ozal Years The 1980 reforms to downgrade the import-substitution based development strategy in order to upgrade an export-led growth helped to catch a high growth platform for a couple of years but such a high level of re-structuring had its own drawbacks and financial liberalization policies created a banking crisis in 1983. However, the recovery was fast and Turkey experienced strong growth for another decade. Financial liberalization also brought new diseases to potential growth, such as dollarization. International financial institutions, such as the International Monetary Fund (IMF), were familiar visitors in those years but this did not prevent another heavy banking crisis in 1994. The 1990s are generally been accepted as lost years not only because of the 1998 earthquake but also because of the global financial spillover, such as the Russian and the Far-East crises. The decade ended with a deep economic crisis in 2001

6. Summary of Turkish Reforms 1.Dervis and Justice and Development Party (AKP) Expansionary fiscal contraction Inflation Targeting Banking Reform

7. Expansionary fiscal contraction I Fiscal discipline since the 2001 crisis has led to a decline in budget deficit to 1%, while the primary balance generated over 5% surplus. Having risen to 5.5% in 2009 due to the crisis, the budget deficit has improved since then, falling to some 1.4% of GDP in 2011.

8. Expansionary fiscal contraction II Debt to GDP ratio of above 70% post 2001 crisis has fallen to below 40%. This has led Treasury rates to permanently decline to single digits.

9. The Sharp fall interest rates As a result, nominal and real rates fell sharply.

10. Inflation: The Long View Inflation has declined to high single-digit levels from over 70% in 2002, yet hasn’t been able to break the 7-11% band on the downside since 2004, except during the crisis.

11. Results: Growth End of the sharp swings? 8.6

12. Turkey’s top-5 export items (1980, share %) How Mediterranean is Turkish Economy? Source: UN COMTRADE Turkey’s top-5 export items (2010, share %) Slide 12 Economic transformation: a lot of diversification and a little bit of sophistication

13. Rapid trade integration after 2001 crisis How Mediterranean is Turkish Economy?Slide 13 Turkey’s imports to and exports from the World 1990-2011, USD bn Source: UN COMTRADE, TEPAV Calculations

14. Unemployment: The Long View The key to understanding Turkish labor force is not people who cannot find work, but those who don’t want to work.

15. Inequality Simple Gini Coefficient hides some of what is going on.

16. Poverty

17. What is missing? Turkey’s connectivity problem (+ prioritization problem: carrying passengers vs. carrying containers) Regional Picture Regional Picture How Mediterranean is Turkish Economy? İstanbul - 105 Tekirdağ + 6 Denizli 0 Antalya + 2 Kayseri + 10 Gaziantep + 15 Ankara + 18 Bolu + 2 Bursa + 28 Samsun + 8 Adana + 7 Balıkesir + 2 İzmir - 37 Eskişehir + 1 Hatay + 8 K.Maraş + 11 Kocaeli + 40 Konya + 12 Manisa + 7 Mersin - 3 Ordu + 1 Sakarya + 4 Trabzon + 3 Karaman - 1 Six-lane Expressways (red lines, as of 2010) and the change in the number of firms located in the provinces that had more than 5 firms in the largest 1000 industrial enterprise rating of the Istanbul Chamber of Industry by 2009, between 1997 and 2009. Kaynak: İstanbul Sanayi Odası Slide 17

18. What is Missing? Education policy is economic policy for Turkey Slide 18 Average age of the population Female labor force participation rate (%) Average years of education 1USA 36.95812.4 2China 35.5677.5 3Japan 44.84811.5 4Germany 44.95312.2 5France 39.95110.4 6UK 40.0559.5 7Brazil 29.3607.2 8Italy 43.5389.7 9India 26.2334.4 10Canada 41.06311.5 11Russia 38.7588.8 12Spain 40.54910.4 13Mexico 27.1438.7 14S. Korea 38.45011.6 15Australia 37.7589.8 16Netherlands 41.16011.2 17Turkey 28.5246.5 18Indonesia 28.2525.7 19Switzerland 41.76110.3 20Poland 38.54610.0 How Mediterranean is Turkish Economy?

19. Emre Deliveli emre.deliveli@gmail.com +90 533-6365340 www.economonitor.com/emredeliveli Hurriyet Daily News columns Thanks for listening! Questions & Discussion