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Turkey Senior Resident Representative International Monetary Fund (IMF) (IMF) Uluslararası Para Fonu Türkiye Daimi Temsilcisi The Turkish economy is on the right track, demonstrating that the government's economic program is working. The way we see it, the real test of the program is whether it will deliver lasting growth in the incomes and welfare of the Turkish people. From that perspective, the recent developments hold out hope that Turkey is finally on its way to achieving the sustained and stable economic growth that has eluded it in the past. Indeed, the current favorable environment presents the government with a unique opportunity for achieving this transition. Seizing this opportunity will require unwavering policy implementation in order to safeguard and build on the recent gains, and we have been encouraged by the intention of the government, and by Prime Minister ERDOGAN himself, to stick firmly to the economic program. On our side, the International Monetary Fund is committed to continuing its support for Turkey to ensure the program's success. Economic policy reforms over the last couple of years have laid the basis for stable growth in the Turkish economy. The economy has become more robust against any unfavorable external developments, and the constraints that have held back economic growth and prosperity in the past are gradually being lifted. In particular, Turkey has achieved: A large adjustment of the government budget balance, and thus kept public debt on a viable path; a break with its high-inflation past, carried out by an independent central bank; a large-scale operation to put the banking system on a sound footing; a major simplification of the complex and non-transparent system of government budget management; and an improvement in the legislative and institutional basis for privatization. The favorable performance of the Turkish economy, in spite of the political uncertainty surrounding the elections last year and the war in Iraq this year, bear testament to the improvements in the underlying economic situation. Turkey has been recovering from the crisis quite well. Interest rates have come down significantly, and the Turkish Lira is stable. Real GNP grew by about 8 percent last year, and the projected growth of 5 percent for this year is well within reach. This strong economic recovery is especially noteworthy for having occurred alongside a rapid fall in inflation. Inflation was more than halved in 2002, to below 30 percent, and the targeted further reduction this year, to 20 percent, is achievable provided that the economic program remains on track. Indeed, surveys of inflation expectations suggest that economic agents share this view, something which is especially noteworthy given Turkey's long history of high inflation. Finally, while Turkey's external current account has recorded a sizable deficit so far in 2003, this mainly reflects strong imports as a result of the recovery in private consumption and investment, while exports continue to perform well. All this is not to deny that some vulnerabilities remain, for instance associated with the high level and short maturity of the government's debt, but we believe that these can also be overcome. To ensure the continuation of the positive economic trends, the Turkish authorities will need to continue the economic policy path they have embarked upon, by: Following budget policies that preserve a manageable debt position. For 2004, as in 2003, the program foresees a public sector surplus before interest payments (the so-called primary surplus) of 6.5 percent of GNP. This target will need to be achieved through spending restraint rather than, as in the past, ad hoc increases in taxes. Within overall spending, there is room for shifting spending, for instance to increase outlays on social programs and offset this by cuts in wasteful spending elsewhere; Supporting the achievement of the overall budget targets by further strengthening the way the public sector operates. In this regard, the focus should be on rationalization of government expenditure, including the overstaffing in the public sector. Also, budget management should be further strengthened and made less fragmented among different institutions, through the implementation of new legislation on public borrowing and the overall budget process. On the government revenue side, the focus should shift towards improving tax collection, now that the reform of the tax system is nearing completion. Better tax collection will help ensure that taxes are paid as intended and that all citizens contribute to the common good as they should, and would also allow a gradual reduction in tax rates over time; continuing a monetary policy focused on lowering inflation. The Central Bank of Turkey, under the stewardship of Governor Sureyya SERDENGEÇTI, has established its credibility in reducing inflation. Following in the path of a number of successful emerging market economies, Turkey is planning to move to so-called formal inflation targeting soon, making inflation itself the target for monetary policy. This move, coupled with continued progress on government budget adjustment and structural reforms, should further buttress the central bank's credibility and ease Turkey's transition to single-digit inflation. Lower inflation will benefit all but a few of Turkey's citizens; indeed, international experience suggests that lower inflation benefits the poor more than the wealthy; preserving the soundness of the banking system, following the major clean-up that has been carried out over the last few years. Weaknesses in the banking system contributed importantly to Turkey's economic and financial crisis in 2000/2001. Following the crisis, the weakest private banks have been taken out of the system, the state banks have undergone financial and operational restructuring, and the new banking agency, the BDDK, has brought the supervisory system towards international standards. During this process, the BDDK under the leadership of President Engin AKÇAKOCA has gained strong credibility through its handling of problem banks. Looking ahead, the focus should shift towards consolidation and enforcement of prudential supervision, to avoid the emergence of new problems down the road. In that regard, the government's support for the independence of the BDDK, which will allow the agency to operate without the interference of politicians and follow best international practice in its decisions, is most welcome. These efforts will help prevent the banking system from again becoming the fulcrum of crisis, and gradually allow the Turkish banks to play an active role in supporting economic growth by channeling savings to productive investments; accelerating privatization to help bring about the necessary increases in productivity, improve the quality and prices of services offered to customers, and lay the basis for sustained economic growth. While actual privatization of state economic enterprises has been lagging in the past, the Privatization Administration, with the full support of the AK Party government, is now clearly set on accelerating the process, and we expect that the efforts will be crowned with success. Let me conclude by stressing once again that the Turkish economy is on the right path, which presents the government with an excellent opportunity. Recent economic developments speak well for what has been achieved in economic stabilization and reforms over the last couple of years. Turkey's present financial arrangement with the IMF the "stand by arrangement" for 2002-2004 has a little over one year to go. During this period, the program foresees further important reforms in many areas, as outlined above. The IMF looks forward to continuing its support for and dialogue with Turkey, to contribute in every way that we can to the success of Turkey's economic program. We have been encouraged by the AK Party government's efforts and commitment to the program. Ensuring the program's success will require sustained implementation of the economic strategy under the program, through the end of 2004 and beyond. The program is working, and the government has an exceptional opportunity to make Turkey a high-growth economy on a lasting basis, improve the living standards of ordinary Turkish citizens, and move Turkey into the league where it really belongs, among the advanced economies of Europe. Ekonomik programa bağlı reformlar, son bir kaç yılda Türk ekonomisindeki istikrarlı büyümenin temelini teşkil etmiştir. Türk ekonomisi şu anda doğru yoldadır; bu da programın işlediğini göstermektedir. Son gelişmeler, Türkiye'nin nihayet yıllardır özlemini çektiği istikrarlı ve kalıcı büyümeyi yakalama yolunda olduğunu ortaya koymuştur. Ekonomi, olumsuz dış gelişmelere karşı gücünü yeniden kazanmış, büyüme ve refahın önündeki engeller yavaş yavaş kaldırılmıştır. Devlet bütçesi dengeleri oturtulmuş, böylelikle kamu borçları sürdürülebilir kılınmış, bağımsız Merkez Bankası'nın girişimleri sonucunda yüksek rakamlı enflasyon dönemleri geride bırakılmış, bankacılık sistemini rayına oturtmaya yönelik geniş ölçekli bir operasyon başlatılmış, devlet bütçesi idaresininin şeffaflıktan uzak ve karmaşık sistemi büyük ölçüde sadeleştirilmiş, özelleştirmenin yasal ve kurumsal temeli sağlamlaştırılmıştır. Bu olumlu gidişatın sürekli olabilmesi için Türk yetkililerin, Türk hükümetinin ve bizzat Başbakan ERDOĞAN'ın ekonomik programa sıkı sıkıya bağlı kalacağı inancıyla, IMF olarak Türkiye'ye verdiğimiz desteği devam ettirmeye sonuna dek kararlıyız. |