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An Overview of Macroeconomic Developments in Turkey with special reference to the AK-Party Era (2002-04) Aykut Kibritç

An Overview of Macroeconomic Developments in Turkey with special reference to the AK-Party Era (2002-04) Aykut Kibritçioğlu Associate Professor of Economics Ankara University, Turkey Tel.: (+90-312) 319 77 20, ext. 340 Fax: (+90-312) 319 77 36 E-Mail: kibritci@p olitics .ankara.edu.tr

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An Overview of Macroeconomic Developments in Turkey with special reference to the AK-Party Era (2002-04) Aykut Kibritç

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  1. An Overview of Macroeconomic Developments in Turkey with special reference to the AK-Party Era (2002-04) Aykut Kibritçioğlu Associate Professor of Economics Ankara University, Turkey Tel.: (+90-312) 319 77 20, ext. 340 Fax: (+90-312) 319 77 36 E-Mail: kibritci@politics.ankara.edu.tr Homepage: http://dialup.ankara.edu.tr/~kibritci/wiiw.html Vienna, 1-15 November 2004 Kibritçioğlu, November 1-15, 2004, (1/79)

  2. Outline of the Presentation • General Facts and Figures, 1970-2004 • Political Climate, 1969-2004 • Market for Goods: Inflation & Disinflation • Market for Goods: Production & Productivity • Labor Market: Employment & Real Wages • Foreign Exchange Market: Exchange Rates, and Currency Substitution • Balance of Payments and External Debts • Public Sector: Deficits and Debts • Financial Sector • Statistical Sources • Appendix: Selected Macroeconomic Indicators for Turkey (1970-2003) Kibritçioğlu, November 1-15, 2004, (2/79)

  3. General Facts and Figures, 1970-2004 Kibritçioğlu, November 1-15, 2004, (3/79)

  4. The 1980-1989 Transformation 1978 - 1980: Balance-of-payments crisis, productivity slowdown and accelerating inflation January 1980: Announcement of a substantial stabilization and structural adjustment program in order to gradually liberalize the economy 1980 - 1982: Domestic financial liberalization May 1981: Abandonment of the fixed exchange-rate regime June 1984 - August 1989: Capital account liberalization and convertibility of the Turkish lira Kibritçioğlu, November 1-15, 2004, (4/79)

  5. Post-1989 Macroeconomic Developments December 1993 - April 1994: A major currency crisis and acceleration in the inflation August 1999: Negative macroeconomic impacts of the Marmara earthquake December 1999: Announcement of an exchange-rate-based stabilization program for 2000-2002 November 2000 & February 2001: Two successive banking and currency crises and political instability in Turkey May 2001: Announcement of the new economic program Kibritçioğlu, November 1-15, 2004, (5/79)

  6. Selected Macroeconomic Indicators [1] annual period averages Source: State Institute of Statistics (SIS), Central Bank of Republic of Turkey (CBRT), State Planning Organization (SPO), the IMF and J.P.Morgan; Kibritçioğlu’s calculations. Kibritçioğlu, November 1-15, 2004, (6/79)

  7. Selected Macroeconomic Indicators [2] annual period averages Source: State Institute of Statistics (SIS), Central Bank of Republic of Turkey (CBRT), State Planning Organization (SPO), the IMF and J.P.Morgan; Kibritçioğlu’s calculations. Kibritçioğlu, November 1-15, 2004, (7/79)

  8. Political Climate, 1969-2004 Kibritçioğlu, November 1-15, 2004, (8/79)

  9. Governments & Political Instability in Turkey, 1969-2004 • 1969-2004 = 36 years = 432 months • Average period between two general elections = 48 months = 4 years • Average life of governments = 15.4 months = 1.3 years • (ICRG=International Country Risk Guide; a declining PR index indicates an increase in the political risk.) Kibritçioğlu, November 1-15, 2004, (9/79)

  10. Selected Events Marked as Black Columns in the Following Figures are: • January 1999: • 4. Ecevit-Government starts... • May 1999: • 5. Ecevit-Government starts... • January 2000: • 2000-2003 Program introduced... • November 2000 and February 2001: • Financial crisis occurred... • November 2002: • General elections & AK-Party-Government starts... Kibritçioğlu, November 1-15, 2004, (10/79)

  11. Market for Goods: Inflation & Disinflation Kibritçioğlu, November 1-15, 2004, (11/79)

  12. Annual Consumer Price Inflation (%, log scale) • In the late 1990s, Turkey was not able to join the global disinflation process observed explicitly... Kibritçioğlu, November 1-15, 2004, (12/79)

  13. In terms of the length of the period, Turkish high-inflation experience is “unique” in the world... Kibritçioğlu, November 1-15, 2004, (13/79)

  14. Turkey suffered from high and persistent inflation since more than three decades. But, finally, it’s declining now... Kibritçioğlu, November 1-15, 2004, (14/79)

  15. Annual inflation rates fell below 15 percent as end of September 2004. (Official target for Dec. 2004: 12 percent) • Inflationary expectations in the country are also changing in a positive direction. Kibritçioğlu, November 1-15, 2004, (15/79)

  16. Market for Goods: Production & Productivity Kibritçioğlu, November 1-15, 2004, (16/79)

  17. Indicators of Long-Run Growth in Turkey • Turkey’s economic growth performance was highly volatile. • Real GDP per capita rose 22 times between 1950 and 2000. Kibritçioğlu, November 1-15, 2004, (17/79)

  18. Industrial Production Index (1980=100) • Turkish industrial sector demonstrated a remarkable growth performance since 1980. Kibritçioğlu, November 1-15, 2004, (18/79)

  19. GDP per capita ($): Turkey & Selected Countries • In an international context, however, Turkey’s economic growth performance is relatively poor. Kibritçioğlu, November 1-15, 2004, (19/79)

  20. In recent years, growth rate of the real GDP has significantly fluctuated. • The Turkish real sector is recovering from the 2000-2001 crisis, which is one of the four deepest economic crises after 1950. Kibritçioğlu, November 1-15, 2004, (20/79)

  21. During the AK-Party era, the industrial production index increased again up to the pre-crisis level. Kibritçioğlu, November 1-15, 2004, (21/79)

  22. Annual increases in the industrial production index sharply fluctuate around an average annual growth of 10 percent, during the AK-Party era. Kibritçioğlu, November 1-15, 2004, (22/79)

  23. Capacity utilization ratio in manufacturing industry also increased up to the pre-crisis level in recent months. Kibritçioğlu, November 1-15, 2004, (23/79)

  24. The monthly ratio of the number of new firms established to the number of the closed ones was fluctuating around 16 within the last two years. Kibritçioğlu, November 1-15, 2004, (24/79)

  25. The manufactuing industry exhibits a remarkable increase in labor productivity. • The reasons for that are still not investigated by economists sufficiently. Kibritçioğlu, November 1-15, 2004, (25/79)

  26. Labor Market: Employment & Real Wages Kibritçioğlu, November 1-15, 2004, (26/79)

  27. The increases in manufacturing production are not fully accommodated by increases in employment. • Turkey has still to solve the unemployment problem that has been deepened after the 2000-2001 financial crisis. Kibritçioğlu, November 1-15, 2004, (27/79)

  28. Real wages in manufacturing industry declined significantly following the 2000-2001 crisis. • They shrinked about 18 percent during the crisis. Kibritçioğlu, November 1-15, 2004, (28/79)

  29. Foreign Exchange Market: Exchange Rates, and Currency Substitution Kibritçioğlu, November 1-15, 2004, (29/79)

  30. “Black-Market” Exchange Rates (BMER) vs. Official Exchange Rates (OER) and Annual Increases in OER (1950-2004) • Since May 1981, Turkey has a relatively flexible exchange rate system. This gradually removed the “black-market” for FX in Turkey. • In 2000, the monthly growth rates of nominal exchange rates were pre-determined to gradually disinflate the economy. Kibritçioğlu, November 1-15, 2004, (30/79)

  31. During the last 27 months, nominal exchange rates seems to float around a specific level, without showing any tendency towards a sharp increase. Kibritçioğlu, November 1-15, 2004, (31/79)

  32. Note that annual growth rate of nominal USD exchange rates turned to negative values between May 2003 and April 2004. Kibritçioğlu, November 1-15, 2004, (32/79)

  33. Following the 2000-2001 crisis, gross FX reserves of the Turkish Central Bank increased significantly. • They are now about 38 percent higher than the level of reserves prior to the crisis. Kibritçioğlu, November 1-15, 2004, (33/79)

  34. The so-called foreign exchange market pressure index does not send any signs of an increase in pressure in the market, while it is observed that banking sector is acting more and more risky again. Kibritçioğlu, November 1-15, 2004, (34/79)

  35. The real appreciation of the Turkish lira against major foreign currencies following the 2000-2001 crisis seems to have stopped within the last 12 months. Kibritçioğlu, November 1-15, 2004, (35/79)

  36. Currency Substitution in Turkey (1985-2004) FX Deposits to M2 • High inflation and low credibility of government policies in the 1990s created a strong currency substitution. But it’s changing now... Kibritçioğlu, November 1-15, 2004, (36/79)

  37. There is a tendency towards reverse currency substitution during the AK-Party era. • Government’s success in disinflating the economy and its increasing credibility may significantly be contributing to this process. Kibritçioğlu, November 1-15, 2004, (37/79)

  38. Balance of Payments and External Debts Kibritçioğlu, November 1-15, 2004, (38/79)

  39. History of Taxation in Turkish International Trade in Goods (1925-2002) Kennedy(1967) Customs Union with the EU (1996) Tokyo (1979) GATT (1947) Uruguay (1986-1993) • Foreign trade liberalization in Turkey is closely associated to Turkey’s relations to the GATT/WTO and the European Union (EU). Kibritçioğlu, November 1-15, 2004, (39/79)

  40. Foreign trade liberalization in the 1980s positively affected Turkey’s trade in goods with the rest of the world. Kibritçioğlu, November 1-15, 2004, (40/79)

  41. Exports to Imports Ratio in Turkey (1923-2003, annual) Kibritçioğlu, November 1-15, 2004, (41/79)

  42. Exports to Imports Ratio in Turkey (1950-2004, monthly) • The share of the agricultural products on exports decreased in Turkey, and the volatility of exports to imports ratio in Turkey declined since early 1980s. Kibritçioğlu, November 1-15, 2004, (42/79)

  43. The developments in the exports to imports ratio show that foreign trade deficits are increasing since early 2002. Kibritçioğlu, November 1-15, 2004, (43/79)

  44. Export and Import Price Indices (1982=100, monthly averages) Kibritçioğlu, November 1-15, 2004, (44/79)

  45. Goods Composition of Turkish Exports and Imports (1969-2003, ISIC, percent) Exports Imports Kibritçioğlu, November 1-15, 2004, (45/79)

  46. Goods Composition of Turkish Exports and Imports (1969-2003, BEC, percent) Exports Imports Kibritçioğlu, November 1-15, 2004, (46/79)

  47. Country Composition of Turkish Exports (1980-2003, percent) Kibritçioğlu, November 1-15, 2004, (47/79)

  48. Country Composition of Turkish Imports (1980-2003, percent) Kibritçioğlu, November 1-15, 2004, (48/79)

  49. The increasing deficit in net exports of goods is eliminated by an increasing surplus in net exports of services, and hence the CAB deficits are declining since March 2004. Kibritçioğlu, November 1-15, 2004, (49/79)

  50. However, the cumulative BoP data shows that the recent improvements have not fully translated into the annual data yet. • In 2003, the CAB/GDP ratio amounted to -2.8%. However, it will possibly climb to -4% in 2004. Kibritçioğlu, November 1-15, 2004, (50/79)

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