Turkey’s economic development from the CHP’s perspective

FAİK ÖZTRAK

When Turkey adopted an export-oriented policy toward growth in the mid-1980s, the way this policy course was shaped and implemented led to a highly vulnerable economic structure which was overly dependent on outside economies both in terms of inputs for the real economy and financial resources. And, as the stability of economic development could not be ensured, a series of crises occurred, including the major February 2001 crisis. Under the government of the time in which Dr. Kemal Derviş became the minister of state responsible for the economy, public borrowing was taken under control, the banking sector was restructured and the independence of the Central Bank was guaranteed. As a consequence, growth resumed, inflation dropped by 39 percentage points and interest rates applicable in public borrowing decreased by 30 points.

When the Justice and Development Party (AKP) came to power in November 2002, it could count on the existence of a significantly strengthened economic policy structure and favorable external conditions in terms of financial resources available to the emerging economies.

During the period between 2003 and 2005, average growth reached 7.7 percent, which is a relatively high rate in international terms. On the other hand, it should also be pointed out that the average growth rate during the 1946-2002 period was 5.2 percent, which is no lower than the average of the 2003-2012/first-quarter period.

The current account and related problems
In the post-2002 period, higher growth rates have been associated with high current account deficits in a structural way. In fact, although the deficit started to decrease in the first quarter of 2012, this has been accompanied by a slowdown in growth. Besides, we must not overlook the fact that the 10 percent current-account-to-GDP ratio hit in 2011 is undoubtedly a very dangerous level by any account.

A large negative trade balance associated with a high import dependency ratio in production; the weakness of the sources of financing of the current account; the overvaluation effect of unduly large and unpredictable periodic inflows of short-term capital on the Turkish Lira; a very low level of savings and a large, short-term external debt stock are among our major concerns.

On the fiscal side
There are critical matters on the fiscal front, too, notably the government’s overly extensive recourse to one-time-only income sources. For example, nine tax amnesties have been declared and put into force so far. The other is the thwarted tax structure which, firstly, is unfair on low-income earners as indirect taxes constitute 68 percent of the total, and, secondly, is both inefficient and subject to vast abuses.

Problems of the social domain
The employment situation as a whole has followed a relatively negative course with a decreasing labor force participation rate (LFPR) in the last decade under the AKP government’s policies, while the employment prospects of youth and women have been affected even more adversely.

The education situation is even worse, as Turkey continues to obtain the third-lowest score in Pisa measurements. Furthermore, the recent education law covering the first 12 years of schooling, referred to as “4+4+4,” forces specialization at a very early age, contrary to world trends and recent practice.
Turkey ranks third lowest in OECD income distribution classification and lowest on poverty.

The CHP’s strategic perspective
The world economic crisis of 2008 and its aftermath have made it unequivocally apparent that neoliberal policies cannot ensure sustainable economic development and that they exacerbate inequalities to the point of undermining the cohesion of societies. As social democrats, we believe that the efficiency of the market is valid only in a framework regulated objectively in a non-partisan way by the public authority and that ensuring the equality of access to opportunity for all, starting from birth, is fundamental.

The thrust of our economic policy is to achieve high sustainable growth in an equitable and employment-friendly – notably for women and youth – pattern which will, at the same time, increase the competitiveness of the Turkish economy and enhance its convergence trend with the European Union. We envisage an average growth rate of 7 percent for the period up to 2023.

The policies to which we will devote special emphasis to this end include the following: financing expenditures without jeopardizing debt dynamics; a transparent and equitable tax system; stability of financial institutions; extending the manufacturing base and its linkages; cooperation between industry and the educational system; transformation toward a knowledge economy; a new social support system based on the concept of rights rather than favors; adequate financing means, particularly to SMEs and start ups; increasing net exports; decreasing the level of dependence in energy; reducing costs while increasing productivity in agriculture and decreasing disparities among regions.

Faik Öztrak is the vice president for economic and financial policy for the Republican People Party (CHP) and former undersecretary of the Treasury. This is an abbreviated version of the article originally published in the Summer 2012 issue of Turkish Policy Quarterly (TPQ). www.turkishpolicy.com