an overview of macroeconomic developments in turkey

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Kibritçioğlu, November 1-15, 2004, (1 An Overview of Macroeconomic An Overview of Macroeconomic Developments in Turkey Developments in Turkey with special reference to the with special reference to the AK-Party Era (2002-04) AK-Party Era (2002-04) Aykut Kibritçioğlu 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: [email protected] Homepage: http://dialup.ankara.edu.tr/~kibritci/wiiw.html Vienna, 1-15 November 2004

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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 - PowerPoint PPT Presentation

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Page 1: An Overview of Macroeconomic  Developments in Turkey

Kibritçioğlu, November 1-15, 2004, (1/79)

An Overview of An Overview of Macroeconomic Macroeconomic Developments in TurkeyDevelopments in Turkeywith special reference to the with special reference to the AK-Party Era AK-Party Era (2002-04)(2002-04)

Aykut KibritçioğluAykut KibritçioğluAssociate Professor of EconomicsAnkara University, TurkeyTel.: (+90-312) 319 77 20, ext. 340Fax: (+90-312) 319 77 36E-Mail: [email protected] Homepage: http://dialup.ankara.edu.tr/~kibritci/wiiw.html

Vienna, 1-15 November 2004

Page 2: An Overview of Macroeconomic  Developments in Turkey

Kibritçioğlu, November 1-15, 2004, (2/79)

Outline of the PresentationOutline 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)

Page 3: An Overview of Macroeconomic  Developments in Turkey

Kibritçioğlu, November 1-15, 2004, (3/79)

GeneralGeneralFacts and Figures, Facts and Figures,

1970-20041970-2004

Page 4: An Overview of Macroeconomic  Developments in Turkey

Kibritçioğlu, November 1-15, 2004, (4/79)

The 1980-1989 TransformationThe 1980-1989 TransformationThe 1980-1989 TransformationThe 1980-1989 Transformation

1978 - 1980:1978 - 1980: Balance-of-payments crisis, productivity slowdown and accelerating inflation

January 1980:January 1980: Announcement of a substantial stabilization and structural adjustment program in order to gradually liberalize the economy

1980 - 1982:1980 - 1982: Domestic financial liberalization

May 1981:May 1981: Abandonment of the fixed exchange-rate regime

June 1984 June 1984 -- August 1989: August 1989: Capital account liberalization and convertibility of the Turkish lira

Page 5: An Overview of Macroeconomic  Developments in Turkey

Kibritçioğlu, November 1-15, 2004, (5/79)

Post-1989 Macroeconomic Post-1989 Macroeconomic DevelopmentsDevelopments

Post-1989 Macroeconomic Post-1989 Macroeconomic DevelopmentsDevelopments

December 1993 - April 1994:December 1993 - April 1994: A major currency crisis and acceleration in the inflation

August 1999:August 1999: Negative macroeconomic impacts of the Marmara earthquake

December 1999:December 1999: Announcement of an exchange-rate-based stabilization program for 2000-2002

November 2000 & February 2001:November 2000 & February 2001: Two successive banking and currency crises and political instability in Turkey

May 2001:May 2001: Announcement of the new economic program

Page 6: An Overview of Macroeconomic  Developments in Turkey

Kibritçioğlu, November 1-15, 2004, (6/79)

Consumer Price

Inflation (%)

Real GDP Growth

(%)

Change in Nominal TL/US$

Exchange Rate (%)

JP Morgan's Real

Effective Exchange

Rate (1990=100)

Absolute Change in Central Bank's

Gross Foreign Exchange

Reserves (millions of USD)

Change in Average

Crude Oil Import

Price (%)

Foreign Exchange

Deposits to Money

Supply M2 (%)

1970-1979 23.3 4.7 14.0 151.4 53 30.5 0.0

1980 110.2 - 2.4 144.3 87.7 419 110.5 0.0

1981-1988 42.4 5.4 44.9 113.4 154 - 8.3 12.8

1989-1993 65.1 4.9 51.4 105.6 781 2.8 46.0

1994 106.3 - 5.5 169.9 137.1 899 - 2.1 94.9

1995-1999 80.7 4.0 70.2 129.9 3 213 5.3 90.5

2000-2001 54.7 - 0.1 72.5 121.4 - 2 195 21.5 103.6

2002-2003 35.1 6.9 11.0 113.1 7 414 8.8 103.5

1970-2003 49.9 4.1 46.7 126.2 985 13.2 38.1

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.

Selected Macroeconomic Indicators Selected Macroeconomic Indicators [1][1]

Selected Macroeconomic Indicators Selected Macroeconomic Indicators [1][1]

annualperiod

averages

annualperiod

averages

Page 7: An Overview of Macroeconomic  Developments in Turkey

Kibritçioğlu, November 1-15, 2004, (7/79)

Change in Nominal Money

Supply M2 (%)

Public Sector Borrowing

Requirement to GDP (%)

Official Unemploy-ment Rate

(%)

Capacity Utilization in the Manufac-

turing Industry (%)

Istanbul Stock

Exchange's Composite 100 Index in

USD (1986=1.0)

Current Account Balance (millions of USD)

Short-Term Capital Inflow

(millions of USD)

Actual Foreign Direct

Investment Inflow

(millions of USD)

1970-1979 31.4 6.1 56.9 - 986 97

1980 74.5 8.9 8.3 55.2 - 3 408 - 2 35

1981-1988 53.3 4.5 7.9 67.8 2.4 - 992 53 125

1989-1993 59.9 9.2 8.1 75.6 5.2 - 1 769 757 727

1994 123.2 7.9 8.1 72.9 4.2 2 631 - 5 190 608

1995-1999 104.7 9.4 6.8 77.0 6.7 - 1 355 1 726 827

2000-2001 45.2 14.4 7.5 73.4 9.2 - 3 215 - 3 561 2 124

2002-2003 32.3 10.6 10.5 76.9 4.6 - 4 165 1 495 440

1970-2003 56.4 7.8 7.9 71.6 5.5 - 1 440 138 606

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.

Selected Macroeconomic Indicators Selected Macroeconomic Indicators [2][2]

Selected Macroeconomic Indicators Selected Macroeconomic Indicators [2][2]

annualperiod

averages

annualperiod

averages

Page 8: An Overview of Macroeconomic  Developments in Turkey

Kibritçioğlu, November 1-15, 2004, (8/79)

Political Climate,Political Climate,1969-20041969-2004

Page 9: An Overview of Macroeconomic  Developments in Turkey

Kibritçioğlu, November 1-15, 2004, (9/79)

Governments & Political InstabilityGovernments & Political Instabilityin Turkeyin Turkey, 1969-2004, 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.)

The Frequency of General Elections and Government Changes in Turkey (Jan. 1969 - Dec. 2004)

19

69

.01

19

70

.01

19

71

.01

19

72

.01

19

73

.01

19

74

.01

19

75

.01

19

76

.01

19

77

.01

19

78

.01

19

79

.01

19

80

.01

19

81

.01

19

82

.01

19

83

.01

19

84

.01

19

85

.01

19

86

.01

19

87

.01

19

88

.01

19

89

.01

19

90

.01

19

91

.01

19

92

.01

19

93

.01

19

94

.01

19

95

.01

19

96

.01

19

97

.01

19

98

.01

19

99

.01

20

00

.01

20

01

.01

20

02

.01

20

03

.01

20

04

.01

35

40

45

50

55

60

65

70

75

Government Changes (28 times) ICRG's Political Risk Index for Turkey General Elections (9 times)

Page 10: An Overview of Macroeconomic  Developments in Turkey

Kibritçioğlu, November 1-15, 2004, (10/79)

Selected Events MarkedSelected Events Marked as Black as Black Columns Columns in the Following Figuresin the Following Figures

areare:: 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...

Page 11: An Overview of Macroeconomic  Developments in Turkey

Kibritçioğlu, November 1-15, 2004, (11/79)

Market for Goods:Market for Goods:Inflation & DisinflationInflation & Disinflation

Page 12: An Overview of Macroeconomic  Developments in Turkey

Kibritçioğlu, November 1-15, 2004, (12/79)

In the late 1990s, Turkey was not able to join the global disinflation process observed explicitly...

Global Inflation & Disinflation and Turkey

0.1

1.0

10.0

100.0

1000.0

10000.0

100000.0

19

49

19

51

19

53

19

55

19

57

19

59

19

61

19

63

19

65

19

67

19

69

19

71

19

73

19

75

19

77

19

79

19

81

19

83

19

85

19

87

19

89

19

91

19

93

19

95

19

97

19

99

20

01

20

03

MaximumInflation Rate(worldwide)

Turkey

DevelopingCountries

World Average

United States

Austria

Annual Consumer Price Inflation(%, log scale)

Page 13: An Overview of Macroeconomic  Developments in Turkey

Kibritçioğlu, November 1-15, 2004, (13/79)

In terms of the length of the period, Turkish high-inflation experience is “unique” in the world...

Relative Inflation Rates: Turkey's CPI Inflation vs. Foreign CPI Inflation

0

5

10

15

20

25

30

35

40

45

50

55

60

6519

69

1971

1973

1975

1977

1979

1981

1983

1985

1987

1989

1991

1993

1995

1997

1999

2001

2003

Turkey /IndustrialCountries

Turkey / WorldAverage

Turkey /Middle East

Turkey /DevelopingCountries

Page 14: An Overview of Macroeconomic  Developments in Turkey

Kibritçioğlu, November 1-15, 2004, (14/79)

Turkey suffered from high and persistent inflation since more than three decades. But, finally, it’s declining now...

Annual & Monthly Consumer Price Inflation (%, Feb.1969-Sep.2004)

-5

5

15

25

35

45

55

65

75

85

95

105

115

125

135

14519

69.0

119

70.0

119

71.0

119

72.0

119

73.0

119

74.0

119

75.0

119

76.0

119

77.0

119

78.0

119

79.0

119

80.0

119

81.0

119

82.0

119

83.0

119

84.0

119

85.0

119

86.0

119

87.0

119

88.0

119

89.0

119

90.0

119

91.0

119

92.0

119

93.0

119

94.0

119

95.0

119

96.0

119

97.0

119

98.0

119

99.0

120

00.0

120

01.0

120

02.0

120

03.0

120

04.0

1

monthly

annual

Page 15: An Overview of Macroeconomic  Developments in Turkey

Kibritçioğlu, November 1-15, 2004, (15/79)

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.

Annual Changes in Wholesale and Consumer Price Indices (SIS, percent)

11.9

7.50

10

20

30

40

50

60

70

80

90

1998

.01

1998

.04

1998

.07

1998

.10

1999

.01

1999

.04

1999

.07

1999

.10

2000

.01

2000

.04

2000

.07

2000

.10

2001

.01

2001

.04

2001

.07

2001

.10

2002

.01

2002

.04

2002

.07

2002

.10

2003

.01

2003

.04

2003

.07

2003

.10

2004

.01

2004

.04

2004

.07

2004

.10

Selected Events WPI CPI

Page 16: An Overview of Macroeconomic  Developments in Turkey

Kibritçioğlu, November 1-15, 2004, (16/79)

Market for Goods:Market for Goods:Production & Production & ProductivityProductivity

Page 17: An Overview of Macroeconomic  Developments in Turkey

Kibritçioğlu, November 1-15, 2004, (17/79)

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.

1.52.9

7414

340-15

-10

-5

0

5

10

15

20

25

30

19

50

19

51

19

52

19

53

19

54

19

55

19

56

19

57

19

58

19

59

19

60

19

61

19

62

19

63

19

64

19

65

19

66

19

67

19

68

19

69

19

70

19

71

19

72

19

73

19

74

19

75

19

76

19

77

19

78

19

79

19

80

19

81

19

82

19

83

19

84

19

85

19

86

19

87

19

88

19

89

19

90

19

91

19

92

19

93

19

94

19

95

19

96

19

97

19

98

19

99

20

00

0

1000

2000

3000

4000

5000

6000

7000

8000

Growth in Real GDP ($) Per Capita, %

Population Growth, %

Real GDP (TL) Growth, %

Real GDP ($) per Capita [right axis]

PWT6.1

Page 18: An Overview of Macroeconomic  Developments in Turkey

Kibritçioğlu, November 1-15, 2004, (18/79)

50

100

150

200

250

300

350

400

450

500

550

600

650

700

75019

80

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

South Korea

Turkey

Israel

USA

Cyprus

Hungary

Japan

UK

Industrial Countries

Germany

Greece

Romania

Industrial Production Index (1980=100)

Turkish industrial sector demonstrated a remarkable growth performance since 1980.

Page 19: An Overview of Macroeconomic  Developments in Turkey

Kibritçioğlu, November 1-15, 2004, (19/79)

GDP per capita ($): Turkey & Selected Countries

In an international context, however, Turkey’s economic growth performance is relatively poor.

1000

6000

11000

16000

21000

26000

3100019

50

1952

1954

1956

1958

1960

1962

1964

1966

1968

1970

1972

1974

1976

1978

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

USA

Japan

Germany

UK

Israel

Cyprus

South Korea

Greece

Hungary

Turkey

Romania

PWT6.1

Page 20: An Overview of Macroeconomic  Developments in Turkey

Kibritçioğlu, November 1-15, 2004, (20/79)

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.

Annual Real GDP Growth (SIS, percent)

13.4

-12-9-6-30369

1215

19

98

Q1

19

98

Q2

19

98

Q3

19

98

Q4

19

99

Q1

19

99

Q2

19

99

Q3

19

99

Q4

20

00

Q1

20

00

Q2

20

00

Q3

20

00

Q4

20

01

Q1

20

01

Q2

20

01

Q3

20

01

Q4

20

02

Q1

20

02

Q2

20

02

Q3

20

02

Q4

20

03

Q1

20

03

Q2

20

03

Q3

20

03

Q4

20

04

Q1

20

04

Q2

20

04

Q3

20

04

Q4

Page 21: An Overview of Macroeconomic  Developments in Turkey

Kibritçioğlu, November 1-15, 2004, (21/79)

During the AK-Party era, the industrial production index increased again up to the pre-crisis level.

Industrial Production Index (SIS, 1997=100)

80859095

100105110115120125130

19

98

.01

19

98

.05

19

98

.09

19

99

.01

19

99

.05

19

99

.09

20

00

.01

20

00

.05

20

00

.09

20

01

.01

20

01

.05

20

01

.09

20

02

.01

20

02

.05

20

02

.09

20

03

.01

20

03

.05

20

03

.09

20

04

.01

20

04

.05

20

04

.09

mov.ave.

Page 22: An Overview of Macroeconomic  Developments in Turkey

Kibritçioğlu, November 1-15, 2004, (22/79)

Annual increases in the industrial production index sharply fluctuate around an average annual growth of 10 percent, during the AK-Party era.

Annual Increases in the Industrial Production Index (SIS, %)

-20-15-10

-505

1015202530

19

98

.01

19

98

.05

19

98

.09

19

99

.01

19

99

.05

19

99

.09

20

00

.01

20

00

.05

20

00

.09

20

01

.01

20

01

.05

20

01

.09

20

02

.01

20

02

.05

20

02

.09

20

03

.01

20

03

.05

20

03

.09

20

04

.01

20

04

.05

20

04

.09

mov.ave.

Page 23: An Overview of Macroeconomic  Developments in Turkey

Kibritçioğlu, November 1-15, 2004, (23/79)

Capacity utilization ratio in manufacturing industry also increased up to the pre-crisis level in recent months.

Capacity Utilization Ratio in Manufacturing Industry (SIS, %)84.8

68707274767880828486

19

98

.01

19

98

.05

19

98

.09

19

99

.01

19

99

.05

19

99

.09

20

00

.01

20

00

.05

20

00

.09

20

01

.01

20

01

.05

20

01

.09

20

02

.01

20

02

.05

20

02

.09

20

03

.01

20

03

.05

20

03

.09

20

04

.01

20

04

.05

20

04

.09

Page 24: An Overview of Macroeconomic  Developments in Turkey

Kibritçioğlu, November 1-15, 2004, (24/79)

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.

Ratio of the Number of New Firms to the Number of Closed Firms (SIS, %)

0

5

10

15

20

25

30

19

98

.01

19

98

.05

19

98

.09

19

99

.01

19

99

.05

19

99

.09

20

00

.01

20

00

.05

20

00

.09

20

01

.01

20

01

.05

20

01

.09

20

02

.01

20

02

.05

20

02

.09

20

03

.01

20

03

.05

20

03

.09

20

04

.01

20

04

.05

20

04

.09

mov.ave.

Page 25: An Overview of Macroeconomic  Developments in Turkey

Kibritçioğlu, November 1-15, 2004, (25/79)

The manufactuing industry exhibits a remarkable increase in labor productivity.

The reasons for that are still not investigated by economists sufficiently.

Partial Productivity per Worker in Manufacturing Industry (1997=100)

90

100

110

120

130

140

150

160

19

98

Q1

19

98

Q2

19

98

Q3

19

98

Q4

19

99

Q1

19

99

Q2

19

99

Q3

19

99

Q4

20

00

Q1

20

00

Q2

20

00

Q3

20

00

Q4

20

01

Q1

20

01

Q2

20

01

Q3

20

01

Q4

20

02

Q1

20

02

Q2

20

02

Q3

20

02

Q4

20

03

Q1

20

03

Q2

20

03

Q3

20

03

Q4

20

04

Q1

20

04

Q2

20

04

Q3

20

04

Q4

Page 26: An Overview of Macroeconomic  Developments in Turkey

Kibritçioğlu, November 1-15, 2004, (26/79)

Labor Market:Labor Market:Employment &Employment &

Real WagesReal Wages

Page 27: An Overview of Macroeconomic  Developments in Turkey

Kibritçioğlu, November 1-15, 2004, (27/79)

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.

Employment Index for the Manufacturing Industry (1997=100)

75

80

85

90

95

100

105

19

98

Q1

19

98

Q2

19

98

Q3

19

98

Q4

19

99

Q1

19

99

Q2

19

99

Q3

19

99

Q4

20

00

Q1

20

00

Q2

20

00

Q3

20

00

Q4

20

01

Q1

20

01

Q2

20

01

Q3

20

01

Q4

20

02

Q1

20

02

Q2

20

02

Q3

20

02

Q4

20

03

Q1

20

03

Q2

20

03

Q3

20

03

Q4

20

04

Q1

20

04

Q2

20

04

Q3

20

04

Q4

mov.ave.

Page 28: An Overview of Macroeconomic  Developments in Turkey

Kibritçioğlu, November 1-15, 2004, (28/79)

Real wages in manufacturing industry declined significantly following the 2000-2001 crisis.

They shrinked about 18 percent during the crisis.

Real-Wage per Hour-Worked in Manufacturing Industry (1997=100)

80

85

90

95

100

105

110

115

120

19

98

Q1

19

98

Q2

19

98

Q3

19

98

Q4

19

99

Q1

19

99

Q2

19

99

Q3

19

99

Q4

20

00

Q1

20

00

Q2

20

00

Q3

20

00

Q4

20

01

Q1

20

01

Q2

20

01

Q3

20

01

Q4

20

02

Q1

20

02

Q2

20

02

Q3

20

02

Q4

20

03

Q1

20

03

Q2

20

03

Q3

20

03

Q4

20

04

Q1

20

04

Q2

20

04

Q3

20

04

Q4

Page 29: An Overview of Macroeconomic  Developments in Turkey

Kibritçioğlu, November 1-15, 2004, (29/79)

Foreign Exchange Foreign Exchange Market:Market:

Exchange Rates, and Exchange Rates, and Currency SubstitutionCurrency Substitution

Page 30: An Overview of Macroeconomic  Developments in Turkey

Kibritçioğlu, November 1-15, 2004, (30/79)

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.

0

1

2

3

4

5

6

7

8

9

50.0

1

52.0

1

54.0

1

56.0

1

58.0

1

60.0

1

62.0

1

64.0

1

66.0

1

68.0

1

70.0

1

72.0

1

74.0

1

76.0

1

78.0

1

80.0

1

82.0

1

84.0

1

86.0

1

88.0

1

90.0

1

92.0

1

94.0

1

96.0

1

98.0

1

00.0

1

02.0

1

04.0

1

-35

0

35

70

105

140

175

210

245BMER / OER (left axis) Annual Increases in OER (right axis)

“Black-Market” Exchange Rates (BMER) vs. Official Exchange Rates (OER)and Annual Increases in OER (1950-2004)

Page 31: An Overview of Macroeconomic  Developments in Turkey

Kibritçioğlu, November 1-15, 2004, (31/79)

During the last 27 months, nominal exchange rates seems to float around a specific level, without showing any tendency towards a sharp increase.

Nominal Exchane Rates (TL/USD and TL/Euro)

0

200000

400000

600000

800000

1000000

1200000

1400000

1600000

1800000

200000019

98.0

1

1998

.05

1998

.09

1999

.01

1999

.05

1999

.09

2000

.01

2000

.05

2000

.09

2001

.01

2001

.05

2001

.09

2002

.01

2002

.05

2002

.09

2003

.01

2003

.05

2003

.09

2004

.01

2004

.05

2004

.09

Selected Events TL/USD Exchange Rate TL/Euro Exchange Rate

Page 32: An Overview of Macroeconomic  Developments in Turkey

Kibritçioğlu, November 1-15, 2004, (32/79)

Note that annual growth rate of nominal USD exchange rates turned to negative values between May 2003 and April 2004.

Annual Changes in Nominal Exchange Rates (percent)

5.4

9.9

-30

-15

0

15

30

45

60

75

90

105

120

135

150

1998

.01

1998

.04

1998

.07

1998

.10

1999

.01

1999

.04

1999

.07

1999

.10

2000

.01

2000

.04

2000

.07

2000

.10

2001

.01

2001

.04

2001

.07

2001

.10

2002

.01

2002

.04

2002

.07

2002

.10

2003

.01

2003

.04

2003

.07

2003

.10

2004

.01

2004

.04

2004

.07

2004

.10

Selected Events TL/USD Exchange Rate TL/Euro Exchange Rate

Page 33: An Overview of Macroeconomic  Developments in Turkey

Kibritçioğlu, November 1-15, 2004, (33/79)

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.

Central Bank's Gross Foreign Exchange Reserves (billion USD)

33.7

15

18

21

24

27

30

33

36

19

98

.01

19

98

.04

19

98

.07

19

98

.10

19

99

.01

19

99

.04

19

99

.07

19

99

.10

20

00

.01

20

00

.04

20

00

.07

20

00

.10

20

01

.01

20

01

.04

20

01

.07

20

01

.10

20

02

.01

20

02

.04

20

02

.07

20

02

.10

20

03

.01

20

03

.04

20

03

.07

20

03

.10

20

04

.01

20

04

.04

20

04

.07

20

04

.10

October 2000 level

Page 34: An Overview of Macroeconomic  Developments in Turkey

Kibritçioğlu, November 1-15, 2004, (34/79)

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.

Foreign Exchange Market Pressure and Banking Sector Fragility

-4.0

-2.0

0.0

2.0

4.0

6.0

8.019

98.0

1

1998

.04

1998

.07

1998

.10

1999

.01

1999

.04

1999

.07

1999

.10

2000

.01

2000

.04

2000

.07

2000

.10

2001

.01

2001

.04

2001

.07

2001

.10

2002

.01

2002

.04

2002

.07

2002

.10

2003

.01

2003

.04

2003

.07

2003

.10

2004

.01

2004

.04

2004

.07

2004

.10

Selected Events Foreign Exchange Market Pressure Index Banking Sector Fragility Index

Page 35: An Overview of Macroeconomic  Developments in Turkey

Kibritçioğlu, November 1-15, 2004, (35/79)

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.

CPI-Based Real Effective Exchange Rates (CBRT, 1995=100)

6065707580859095

100105

19

98

.01

19

98

.04

19

98

.07

19

98

.10

19

99

.01

19

99

.04

19

99

.07

19

99

.10

20

00

.01

20

00

.04

20

00

.07

20

00

.10

20

01

.01

20

01

.04

20

01

.07

20

01

.10

20

02

.01

20

02

.04

20

02

.07

20

02

.10

20

03

.01

20

03

.04

20

03

.07

20

03

.10

20

04

.01

20

04

.04

20

04

.07

20

04

.10

increases: real depreciationdecreases: real appreciation

mov.ave.

inverseof the CBRT'soriginal index

Page 36: An Overview of Macroeconomic  Developments in Turkey

Kibritçioğlu, November 1-15, 2004, (36/79)

0.00

0.20

0.40

0.60

0.80

1.00

1.20

1.40

19

85

19

86

19

87

19

88

19

89

19

90

19

91

19

92

19

93

19

94

19

95

19

96

19

97

19

98

19

99

20

00

20

01

20

02

20

03

20

04

FX Deposits to M2

Currency Substitution in Turkey (1985-2004)

High inflation and low credibility of government policies in the 1990s created a strong currency substitution. But it’s changing now...

Page 37: An Overview of Macroeconomic  Developments in Turkey

Kibritçioğlu, November 1-15, 2004, (37/79)

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.

Two Indicators of Currency Substitution in Turkey (%)

30

50

70

90

110

130

15019

98.0

1

1998

.04

1998

.07

1998

.10

1999

.01

1999

.04

1999

.07

1999

.10

2000

.01

2000

.04

2000

.07

2000

.10

2001

.01

2001

.04

2001

.07

2001

.10

2002

.01

2002

.04

2002

.07

2002

.10

2003

.01

2003

.04

2003

.07

2003

.10

2004

.01

2004

.04

2004

.07

2004

.10

Selected Events Foreign Exchange Deposits / TL-denominated Deposits (M2Y - M2) / M2

Page 38: An Overview of Macroeconomic  Developments in Turkey

Kibritçioğlu, November 1-15, 2004, (38/79)

Balance of Balance of Payments and Payments and External DebtsExternal Debts

Page 39: An Overview of Macroeconomic  Developments in Turkey

Kibritçioğlu, November 1-15, 2004, (39/79)

0

10

20

30

40

50

60

70

80

90

100

110

1925

1930

1935

1940

1945

1950

1955

1960

1965

1970

1975

1980

1985

1990

1995

2000

Custom Duties / Imports (%) Taxes on Foreign Trade / Imports (%)

History of Taxation in Turkish International Trade in Goods (1925-2002)

Ken

ned

y (196

7)

To

kyo

(1979)

Uru

gu

ay (1986-

1993)

GA

TT

(194

7)

Cu

stom

s Un

ion

with

the E

U

(1996)

Foreign trade liberalization in Turkey is closely associated to Turkey’s relations to the GATT/WTO and the European Union (EU).

Page 40: An Overview of Macroeconomic  Developments in Turkey

Kibritçioğlu, November 1-15, 2004, (40/79)

0.00

0.25

0.50

0.75

1.00

1.2519

69

1970

1971

1972

1973

1974

1975

1976

1977

1978

1979

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

Bilateral (TL/USD) Real Exchange Rates (1995=1.0)Official Exchange Rates / Black-Market Exchange RatesExports-to-Imports Ratio in ManufacturingImport Penetration RatioTax-Rebate Ratio for ExportsTaxes on Foreign-Trade to Imports RatioCustoms-Duties to Imports Ratio

1969-1980: import-substituion era1979-1980: real-sector and balance-of-payments crises1980-1984: current-account liberalization and exports promotionMay 1981: abondonment of fixed exchange rates1989: capital-account liberalization1994: major currency crisis2000-2001: triple crises (banking, currency & real-sector)

Foreign trade liberalization in the 1980s positively affected Turkey’s trade in goods with the rest of the world.

Page 41: An Overview of Macroeconomic  Developments in Turkey

Kibritçioğlu, November 1-15, 2004, (41/79)

Exports to Imports Ratio in Turkey (1923-2003, annual)

0.00

0.20

0.40

0.60

0.80

1.00

1.20

1.40

1.60

1.80

2.001

92

31

92

51

92

71

92

91

93

11

93

31

93

51

93

71

93

91

94

11

94

31

94

51

94

71

94

91

95

11

95

31

95

51

95

71

95

91

96

11

96

31

96

51

96

71

96

91

97

11

97

31

97

51

97

71

97

91

98

11

98

31

98

51

98

71

98

91

99

11

99

31

99

51

99

71

99

92

00

12

00

3

Page 42: An Overview of Macroeconomic  Developments in Turkey

Kibritçioğlu, November 1-15, 2004, (42/79)

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.

0.00

0.20

0.40

0.60

0.80

1.00

1.20

1.40

1.60

1.80

2.00

50.0

1

52.0

1

54.0

1

56.0

1

58.0

1

60.0

1

62.0

1

64.0

1

66.0

1

68.0

1

70.0

1

72.0

1

74.0

1

76.0

1

78.0

1

80.0

1

82.0

1

84.0

1

86.0

1

88.0

1

90.0

1

92.0

1

94.0

1

96.0

1

98.0

1

00.0

1

02.0

1

04.0

1

mov.ave.

Page 43: An Overview of Macroeconomic  Developments in Turkey

Kibritçioğlu, November 1-15, 2004, (43/79)

The developments in the exports to imports ratio show that foreign trade deficits are increasing since early 2002.

Exports to Imports Ratio (SIS, percent, as of 12-monthly totals)

64.4

73.6

4550556065707580859095

19

98

.01

19

98

.05

19

98

.09

19

99

.01

19

99

.05

19

99

.09

20

00

.01

20

00

.05

20

00

.09

20

01

.01

20

01

.05

20

01

.09

20

02

.01

20

02

.05

20

02

.09

20

03

.01

20

03

.05

20

03

.09

20

04

.01

20

04

.05

20

04

.09

manufacturing

total

Page 44: An Overview of Macroeconomic  Developments in Turkey

Kibritçioğlu, November 1-15, 2004, (44/79)

Export and Import Price Indices(1982=100, monthly averages)

70

80

90

100

110

120

130

1982

.12

1983

.12

1984

.12

1985

.12

1986

.12

1987

.12

1988

.12

1989

.12

1990

.12

1991

.12

1992

.12

1993

.12

1994

.12

1995

.12

1996

.12

1997

.12

1998

.12

1999

.12

2000

.12

2001

.12

2002

.12

2003

.12

2004

.12

External Terms of Trade Export Price Index Import Price Index 1982=100

Page 45: An Overview of Macroeconomic  Developments in Turkey

Kibritçioğlu, November 1-15, 2004, (45/79)

Goods Composition of Turkish Exports and Imports(1969-2003, ISIC, percent)

Exports Imports

0.00

0.10

0.20

0.30

0.40

0.50

0.60

0.70

0.80

0.90

1.00

1969

1971

1973

1975

1977

1979

1981

1983

1985

1987

1989

1991

1993

1995

1997

1999

2001

2003

Agriculture

ManufacturingMining &

Quarrying

0.00

0.10

0.20

0.30

0.40

0.50

0.60

0.70

0.80

0.90

1.00

1969

1971

1973

1975

1977

1979

1981

1983

1985

1987

1989

1991

1993

1995

1997

1999

2001

2003

Agriculture

Manufacturing

Mining & Quarrying

Page 46: An Overview of Macroeconomic  Developments in Turkey

Kibritçioğlu, November 1-15, 2004, (46/79)

0.00

0.10

0.20

0.30

0.40

0.50

0.60

0.70

0.80

0.90

1.00

19

69

19

71

19

73

19

75

19

77

19

79

19

81

19

83

19

85

19

87

19

89

19

91

19

93

19

95

19

97

19

99

20

01

20

03

Consumption Goods

Intermediate Goods

Inv.G.

0.00

0.10

0.20

0.30

0.40

0.50

0.60

0.70

0.80

0.90

1.00

19

69

19

71

19

73

19

75

19

77

19

79

19

81

19

83

19

85

19

87

19

89

19

91

19

93

19

95

19

97

19

99

20

01

20

03

Consumption Goods

Intermediate Goods

Investment Goods

Goods Composition of Turkish Exports and Imports(1969-2003, BEC, percent)

Exports Imports

Page 47: An Overview of Macroeconomic  Developments in Turkey

Kibritçioğlu, November 1-15, 2004, (47/79)

0

10

20

30

40

50

60

70

80

90

100

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

Other Countries

Developing Western Hemisphere

Developing Middle East

Developing Europe

Developing Asia

Developing Africa

EU15

Industrial Countries (excl. EU15)

Country Composition of Turkish Exports (1980-2003, percent)

Page 48: An Overview of Macroeconomic  Developments in Turkey

Kibritçioğlu, November 1-15, 2004, (48/79)

Country Composition of Turkish Imports (1980-2003, percent)

0

10

20

30

40

50

60

70

80

90

100

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

Other Countries

Developing Western Hemisphere

Developing Middle East

Developing Europe

Developing Asia

Developing Africa

EU15

Industrial Countries (excl. EU15)

Page 49: An Overview of Macroeconomic  Developments in Turkey

Kibritçioğlu, November 1-15, 2004, (49/79)

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.

Current Account Balance: Selected Indicators (SIS, billion USD, monthly)

-2.60

-1.95

-1.30

-0.65

0.00

0.65

1.301

99

8.0

1

19

98

.05

19

98

.09

19

99

.01

19

99

.05

19

99

.09

20

00

.01

20

00

.05

20

00

.09

20

01

.01

20

01

.05

20

01

.09

20

02

.01

20

02

.05

20

02

.09

20

03

.01

20

03

.05

20

03

.09

20

04

.01

20

04

.05

20

04

.09

Selected Events Net Exports of Goods (billion TL)

Net Exports of Goods and Services (billion TL) Current Account Balance (billion TL)

Page 50: An Overview of Macroeconomic  Developments in Turkey

Kibritçioğlu, November 1-15, 2004, (50/79)

Current Account Balance: Selected Indicators (SIS, billion USD, cumulative)

-21.9

-9.8

-12.3

-24

-20

-16

-12

-8

-4

0

4

8

1998

.01

1998

.04

1998

.07

1998

.10

1999

.01

1999

.04

1999

.07

1999

.10

2000

.01

2000

.04

2000

.07

2000

.10

2001

.01

2001

.04

2001

.07

2001

.10

2002

.01

2002

.04

2002

.07

2002

.10

2003

.01

2003

.04

2003

.07

2003

.10

2004

.01

2004

.04

2004

.07

2004

.10

Selected Events Net Exports of Goods (billion TL)

Net Exports of Goods and Services (billion TL) Current Account Balance (billion TL)

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.

Page 51: An Overview of Macroeconomic  Developments in Turkey

Kibritçioğlu, November 1-15, 2004, (51/79)

-12

-10

-8

-6

-4

-2

0

2

4

6

1975

1976

1977

1978

1979

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

Erratic Nature of Net Short-Term Capital Inflows(billion USD, annual data)

capitalcapitalaccountaccount

liberalizationliberalization

capitalcapitalaccountaccount

liberalizationliberalization

19941994crisiscrisis19941994crisiscrisis

2000-012000-01crisiscrisis

2000-012000-01crisiscrisis

Page 52: An Overview of Macroeconomic  Developments in Turkey

Kibritçioğlu, November 1-15, 2004, (52/79)

Net Short-Term Capital Inflows (billion USD)

-14-12-10-8-6-4-202468

1986

.01

1987

.01

1988

.01

1989

.01

1990

.01

1991

.01

1992

.01

1993

.01

1994

.01

1995

.01

1996

.01

1997

.01

1998

.01

1999

.01

2000

.01

2001

.01

2002

.01

2003

.01

2004

.01

monthly 12-monthly

One indication that Turkey’s policies are on the right track would be a return to positive short-term inflows at a steady and sustainable level. But a substantial increase in longer term capital inflows is not observed in Turkey.

capitalcapitalaccountaccount

liberalizationliberalization

capitalcapitalaccountaccount

liberalizationliberalization

Page 53: An Overview of Macroeconomic  Developments in Turkey

Kibritçioğlu, November 1-15, 2004, (53/79)

Short-term capital outflows that rose following the 2000-2001 financial crisis declined significantly after January 2002.

Net short-term capital inflows (in terms of cummulative data) are positive in 2004.

Net Short-Term Capital Inflows (billion USD)

2.6

5.45.4

-12.3

-15

-12

-9

-6

-3

0

3

6

1998

.01

1998

.04

1998

.07

1998

.10

1999

.01

1999

.04

1999

.07

1999

.10

2000

.01

2000

.04

2000

.07

2000

.10

2001

.01

2001

.04

2001

.07

2001

.10

2002

.01

2002

.04

2002

.07

2002

.10

2003

.01

2003

.04

2003

.07

2003

.10

2004

.01

2004

.04

2004

.07

2004

.10

Selected Events Monthly 12-monthly

Page 54: An Overview of Macroeconomic  Developments in Turkey

Kibritçioğlu, November 1-15, 2004, (54/79)

The effects of both current and capital account liberalizations realized in the 1980s can roughly be followed by the fluctuations in the CAB to GDP and net short term capital inflows to GDP ratios.

Current Account Balance to GDP & Net Short-Term Capital Inflows to GDP (%)

-9

-8

-7

-6

-5

-4

-3

-2

-1

0

1

2

3

1975

1976

1977

1978

1979

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

CAB to GDP Net Short-Term Capital Inflows to GDP

currentaccountliberalization

capitalaccount

liberalization

Page 55: An Overview of Macroeconomic  Developments in Turkey

Kibritçioğlu, November 1-15, 2004, (55/79)

The monthly data shows that the volatility of the CAB to nominal industrial output is significantly lower than that of the net short-term capital inflows to output ratio.

Current Account Balance to Output & Net Short-Term Capital Inflows to Output(January 1999 = 1.0; as of 12-monthly cummulatives)

-2.8

2.11.0

-25

-20

-15

-10

-5

0

5

10

19

98

.01

19

98

.05

19

98

.09

19

99

.01

19

99

.05

19

99

.09

20

00

.01

20

00

.05

20

00

.09

20

01

.01

20

01

.05

20

01

.09

20

02

.01

20

02

.05

20

02

.09

20

03

.01

20

03

.05

20

03

.09

20

04

.01

20

04

.05

20

04

.09

Selected Events Current Account Balance to Output Net Short-Term Capital Inflows to Output

Page 56: An Overview of Macroeconomic  Developments in Turkey

Kibritçioğlu, November 1-15, 2004, (56/79)

Political Process(Voters, Political Parties &

Bureaucrats)

Political Process(Voters, Political Parties &

Bureaucrats)

““Hot Money” Mechanism in Hot Money” Mechanism in TurkeyTurkey

High Public Sector Deficits

High Public Sector Deficits

High Real International Interest

Rate Differential

High Real International Interest

Rate Differential

Decreasing or Stable Nominal Exchange

Rates

Decreasing or Stable Nominal Exchange

Rates

Net Short-TermCapital Inflows from Abroad

Net Short-TermCapital Inflows from Abroad

interest rate parityinterest rate parity

......

It‘s not only “capital account

liberalization” itself which caused

macroeconomic problems in Turkey

after 1989.

It‘s not only “capital account

liberalization” itself which caused

macroeconomic problems in Turkey

after 1989.

But everything changes,if there is a CC at the door…

But everything changes,if there is a CC at the door…

high inflationhigh inflation

upward pressure on FX rates

upward pressure on FX rates

Page 57: An Overview of Macroeconomic  Developments in Turkey

Kibritçioğlu, November 1-15, 2004, (57/79)

Years

Cumulative FDI Permits

(million USD)

Annual FDI Permits (million

USD)

Share of Manufacturing

Industry on Authorized FDI

(%)

Number of Foreign Capital

Companies

Total Capital of Foreign Capital

Companies (bill. TL)

Realized FDI Inflows (million

USD)

Realized FDI Outflows (million

USD)

Net FDI Inflows (million

USD)

1980 97 97 91.5 78 283901981 435 338 73.0 109 47400 141 46 951982 602 167 59.0 147 100196 103 48 551983 704 103 86.6 166 147109 87 41 461984 976 271 68.5 235 254775 113 0 1131985 1210 234 60.9 408 464981 99 0 991986 1574 364 53.2 619 707164 125 0 1251987 2229 655 44.9 836 960035 115 0 1151988 3050 821 59.8 1172 1597103 354 0 3541989 4562 1512 62.8 1525 4847832 663 0 6631990 6423 1861 65.2 1856 7943775 684 0 6841991 8390 1967 55.7 2123 13101036 907 97 8101992 10210 1820 70.0 2330 23441214 911 67 8441993 12274 2063 76.0 2554 36737050 746 110 6361994 13751 1478 74.9 2830 62449964 636 28 6081995 16690 2938 68.0 3161 113013790 934 49 8851996 20525 3836 16.7 3582 235971182 914 192 7221997 22204 1678 52.0 4068 458968459 852 47 8051998 23850 1646 61.8 4533 823560554 953 13 9401999 25550 1700 66.1 4950 1446503 813 30 7832000 29027 3477 31.8 5328 3063464 1707 725 9822001 31752 2725 45.7 5841 6184411 3288 22 32662002 33995 2243 39.8 6280 10092737 590 5 585

2003 * 35203 1208 58.8 6511 12605285 414 8 406

FDI inflows into Turkey are far from being sufficient to improve the economy: Only 16.1 billions of USD within 23 years...

Page 58: An Overview of Macroeconomic  Developments in Turkey

Kibritçioğlu, November 1-15, 2004, (58/79)

In 2003, Turkey’s GDP amounted to 240 billion USD, while its total external debts reached to 147 billion USD.

95 out of 147 billion USD amounting total debts are created solely by the public sector.

Selected Indicators of External Debts of Turkey (percent)

61.9

53.9

17.6

0102030405060708090

1998

Q1

1998

Q2

1998

Q3

1998

Q4

1999

Q1

1999

Q2

1999

Q3

1999

Q4

2000

Q1

2000

Q2

2000

Q3

2000

Q4

2001

Q1

2001

Q2

2001

Q3

2001

Q4

2002

Q1

2002

Q2

2002

Q3

2002

Q4

2003

Q1

2003

Q2

2003

Q3

2003

Q4

2004

Q1

2004

Q2

2004

Q3

2004

Q4

Selected Events Public Sector's Share on Total Debts Total External Debts to GDP Short-Term to Total Debts

Page 59: An Overview of Macroeconomic  Developments in Turkey

Kibritçioğlu, November 1-15, 2004, (59/79)

The ratio of international reserves to short-term external debts increased significantly after the 2000-2001 financial crisis, but in the AK-Party era it declined again slightly.

Reserves vs. External Debts (percent)

30.729.4 36.8

113.3

250.5

174.1

020406080

100120140160180200220240260280

1998

Q1

1998

Q2

1998

Q3

1998

Q4

1999

Q1

1999

Q2

1999

Q3

1999

Q4

2000

Q1

2000

Q2

2000

Q3

2000

Q4

2001

Q1

2001

Q2

2001

Q3

2001

Q4

2002

Q1

2002

Q2

2002

Q3

2002

Q4

2003

Q1

2003

Q2

2003

Q3

2003

Q4

2004

Q1

2004

Q2

2004

Q3

2004

Q4

Selected Events Net International Reserves to Total External Debts

Central Bank's FX Reserves to Public Sector's External Debts Net International Reserves to Short-Term External Debts

Page 60: An Overview of Macroeconomic  Developments in Turkey

Kibritçioğlu, November 1-15, 2004, (60/79)

Public Sector:Public Sector:Deficits and DebtsDeficits and Debts

Page 61: An Overview of Macroeconomic  Developments in Turkey

Kibritçioğlu, November 1-15, 2004, (61/79)

The PSBR is a better indicator of the public sector in Turkey because it also covers the non-CB public institutions.

The PSBR is diminishing since three years, while the non-interest PSBR is improving.

Public Sector Borrowing Requirement (PSBR) and Consolidated Budget Balance (CBB)

-18

-15

-12

-9

-6

-3

0

3

6

9

1219

75

1976

1977

1978

1979

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

Non-interest PSBR to GDP PSBR to GDP

Non-interest CB to GDP CB to GDP

Page 62: An Overview of Macroeconomic  Developments in Turkey

Kibritçioğlu, November 1-15, 2004, (62/79)

Non-interest (primary) consolidated budget balance (CBB) seems to be stabilized with respect to nominal output growth, while the CBB (incl. interest payments) is diminishing since late 2003 again.

Cumulative Consolidated Budget Balance / Average Nominal Industrial Production

-150

-125

-100

-75

-50

-25

0

25

50

7519

98.0

1

1998

.04

1998

.07

1998

.10

1999

.01

1999

.04

1999

.07

1999

.10

2000

.01

2000

.04

2000

.07

2000

.10

2001

.01

2001

.04

2001

.07

2001

.10

2002

.01

2002

.04

2002

.07

2002

.10

2003

.01

2003

.04

2003

.07

2003

.10

2004

.01

2004

.04

2004

.07

2004

.10

Selected Events Primary Balance to Nominal Output CB Balance to Nominal Output

Page 63: An Overview of Macroeconomic  Developments in Turkey

Kibritçioğlu, November 1-15, 2004, (63/79)

As a result of both the successful disinflationary policies and the Government’s increasing political credibility, Turkish Treasury pays now lower interest rates in domestic borrowing.

Compound, Weighted Auction Interest-Rates (Treasury, percent) & Confidence Index

25.4

193.7

15.1

-20

0

20

40

60

80

100

120

140

160

180

200

1998

.01

1998

.04

1998

.07

1998

.10

1999

.01

1999

.04

1999

.07

1999

.10

2000

.01

2000

.04

2000

.07

2000

.10

2001

.01

2001

.04

2001

.07

2001

.10

2002

.01

2002

.04

2002

.07

2002

.10

2003

.01

2003

.04

2003

.07

2003

.10

2004

.01

2004

.04

2004

.07

2004

.10

Selected Events Nominal Reel (ex ante) Reel (ex post) Real Sector Confidence Index

Page 64: An Overview of Macroeconomic  Developments in Turkey

Kibritçioğlu, November 1-15, 2004, (64/79)

Public sector’s domestic debts increased sharply following the 2000-2001 crisis, both in nominal and real terms.

Domestic Debt Stock of the Public Sector (billion TL)

0

50000000

100000000

150000000

200000000

25000000019

98.0

1

1998

.05

1998

.09

1999

.01

1999

.05

1999

.09

2000

.01

2000

.05

2000

.09

2001

.01

2001

.05

2001

.09

2002

.01

2002

.05

2002

.09

2003

.01

2003

.05

2003

.09

2004

.01

2004

.05

2004

.09

Selected Events nominal, billion TL real, billion TL

Page 65: An Overview of Macroeconomic  Developments in Turkey

Kibritçioğlu, November 1-15, 2004, (65/79)

Public sector’s domestic debts in terms of USD are also increasing sharply...

Domestic Debt Stock of the Public Sector (billion USD)

20

40

60

80

100

120

140

160

19

98

.01

19

98

.05

19

98

.09

19

99

.01

19

99

.05

19

99

.09

20

00

.01

20

00

.05

20

00

.09

20

01

.01

20

01

.05

20

01

.09

20

02

.01

20

02

.05

20

02

.09

20

03

.01

20

03

.05

20

03

.09

20

04

.01

20

04

.05

20

04

.09

Page 66: An Overview of Macroeconomic  Developments in Turkey

Kibritçioğlu, November 1-15, 2004, (66/79)

Public sector’s domestic debts seem to be stabilized with respect to changes in industrial production index within the last two years.

Ave. Domestic Debt Stock of the Public Sector to Ave. Industrial Output (%)

80100120140160180200220240260

19

98

.01

19

98

.05

19

98

.09

19

99

.01

19

99

.05

19

99

.09

20

00

.01

20

00

.05

20

00

.09

20

01

.01

20

01

.05

20

01

.09

20

02

.01

20

02

.05

20

02

.09

20

03

.01

20

03

.05

20

03

.09

20

04

.01

20

04

.05

20

04

.09

Page 67: An Overview of Macroeconomic  Developments in Turkey

Kibritçioğlu, November 1-15, 2004, (67/79)

Since the latest general elections in November 2002, the public sector’s domestic debts increased more than 65 percent in terms of USD, while its external debts expanded only around 15 percent.

Domestic and External Debts of the Public Sector (billion USD)

45.2

84.9

140.4

53.4 79.9

92.2

0

20

40

60

80

100

120

140

160

180

1998

Q1

1998

Q2

1998

Q3

1998

Q4

1999

Q1

1999

Q2

1999

Q3

1999

Q4

2000

Q1

2000

Q2

2000

Q3

2000

Q4

2001

Q1

2001

Q2

2001

Q3

2001

Q4

2002

Q1

2002

Q2

2002

Q3

2002

Q4

2003

Q1

2003

Q2

2003

Q3

2003

Q4

2004

Q1

2004

Q2

2004

Q3

2004

Q4

Selected Events Domestis Debts of the Public Sector External Debts of the Public Sector

Page 68: An Overview of Macroeconomic  Developments in Turkey

Kibritçioğlu, November 1-15, 2004, (68/79)

Financial SectorFinancial Sector

Page 69: An Overview of Macroeconomic  Developments in Turkey

Kibritçioğlu, November 1-15, 2004, (69/79)

Feb. '02

Aug. '97

Feb

. '01

Sep. '88

Feb. '87

Nov. '83

Aug. '82

May '80

Jun. '79

Dec. '82

Jan. '86

Nov. '90

No

v. '9

1

Oct. '93

Apr. '94

Oct. '94

Jul. '99

Oct

. '00

-2.0

-1.5

-1.0

-0.5

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5Ja

n-79

Jan-

80

Jan-

81

Jan-

82

Jan-

83

Jan-

84

Jan-

85

Jan-

86

Jan-

87

Jan-

88

Jan-

89

Jan-

90

Jan-

91

Jan-

92

Jan-

93

Jan-

94

Jan-

95

Jan-

96

Jan-

97

Jan-

98

Jan-

99

Jan-

00

Jan-

01

Jan-

02

Jan-

03

Jan-

04

High Fragility BSF3 BSF2

Banking Sector Fragility in TurkeyBanking Sector Fragility in TurkeyBanking Sector Fragility in TurkeyBanking Sector Fragility in Turkey

Turkish banking sector experienced difficulties many times within the last 25 years, as a result of their own excessive risk-taking behavior in the past.

For Methodology: see Kibritçioğlu (2003), “Monitoring ...”.

Page 70: An Overview of Macroeconomic  Developments in Turkey

Kibritçioğlu, November 1-15, 2004, (70/79)

The Turkish banking sector is recovering from the 2000-2001 crisis, and according to the BSF index, it is taking excessive risk again...

(The BSF3 index is a weighted average of real annual changes in foreign liabilities,

claims on private sector, and total deposits.)

Banking Sector Fragility Index

-2.0

-1.5

-1.0

-0.5

0.0

0.5

1.0

1.5

19

98

.01

19

98

.05

19

98

.09

19

99

.01

19

99

.05

19

99

.09

20

00

.01

20

00

.05

20

00

.09

20

01

.01

20

01

.05

20

01

.09

20

02

.01

20

02

.05

20

02

.09

20

03

.01

20

03

.05

20

03

.09

20

04

.01

20

04

.05

20

04

.09

For Methodology: see Kibritçioğlu (2003), “Monitoring ...”.

Page 71: An Overview of Macroeconomic  Developments in Turkey

Kibritçioğlu, November 1-15, 2004, (71/79)

The recent developments in the FL to FA ratio indicate that the external open (short) position of Turkish banking system is decreasing now...

Deposit Banks: Foreign Liabilities to Foreign Assets (percent)

708090

100110120130140150160

19

98

.01

19

98

.05

19

98

.09

19

99

.01

19

99

.05

19

99

.09

20

00

.01

20

00

.05

20

00

.09

20

01

.01

20

01

.05

20

01

.09

20

02

.01

20

02

.05

20

02

.09

20

03

.01

20

03

.05

20

03

.09

20

04

.01

20

04

.05

20

04

.09

Banking Sector Fragility in TurkeyBanking Sector Fragility in TurkeyBanking Sector Fragility in TurkeyBanking Sector Fragility in Turkey

Page 72: An Overview of Macroeconomic  Developments in Turkey

Kibritçioğlu, November 1-15, 2004, (72/79)

The ratio of 1-month to 12-month deposit interest rates exhibits a different pattern after the 2000-2001 financial crisis: It is very close to 100 percent now...

Weighted Deposit Interest Rates: Ratio of 1-Month to 12-Months Interest Rates (percent)

75

95

115

135

155

175

195

215

235

19

98

.01

19

98

.05

19

98

.09

19

99

.01

19

99

.05

19

99

.09

20

00

.01

20

00

.05

20

00

.09

20

01

.01

20

01

.05

20

01

.09

20

02

.01

20

02

.05

20

02

.09

20

03

.01

20

03

.05

20

03

.09

20

04

.01

20

04

.05

20

04

.09

Page 73: An Overview of Macroeconomic  Developments in Turkey

Kibritçioğlu, November 1-15, 2004, (73/79)

1

10

100

1000

10000

10000019

86.0

1

1987

.01

1988

.01

1989

.01

1990

.01

1991

.01

1992

.01

1993

.01

1994

.01

1995

.01

1996

.01

1997

.01

1998

.01

1999

.01

2000

.01

2001

.01

2002

.01

2003

.01

2004

.01

January 1986 = TL 1 January 1986 = USD 1

Istanbul Stock Exchange’s National 100 Istanbul Stock Exchange’s National 100 IndexIndex

Istanbul Stock Exchange’s National 100 Istanbul Stock Exchange’s National 100 IndexIndex

Page 74: An Overview of Macroeconomic  Developments in Turkey

Kibritçioğlu, November 1-15, 2004, (74/79)

-100

0

100

200

300

400

500

600

700

800

900

1987

.01

1988

.01

1989

.01

1990

.01

1991

.01

1992

.01

1993

.01

1994

.01

1995

.01

1996

.01

1997

.01

1998

.01

1999

.01

2000

.01

2001

.01

2002

.01

2003

.01

2004

.01

January 1986 = TL 1 January 1986 = USD 1

Annual Increases in ISE’s National 100 IndexAnnual Increases in ISE’s National 100 IndexAnnual Increases in ISE’s National 100 IndexAnnual Increases in ISE’s National 100 Index

Page 75: An Overview of Macroeconomic  Developments in Turkey

Kibritçioğlu, November 1-15, 2004, (75/79)

ISE’s (İMKB) National 100 index increased mostly during the AK-Party era. Since spring 2004, however, it follows a relatively stable path.

12-Monthly Increases in Istanbul Stock Exchange's National 100 Index

-100

0

100

200

300

400

500

600

1998

.01

1998

.04

1998

.07

1998

.10

1999

.01

1999

.04

1999

.07

1999

.10

2000

.01

2000

.04

2000

.07

2000

.10

2001

.01

2001

.04

2001

.07

2001

.10

2002

.01

2002

.04

2002

.07

2002

.10

2003

.01

2003

.04

2003

.07

2003

.10

2004

.01

2004

.04

2004

.07

2004

.10

Selected Events 1986 = 1 TL 1986 = 1 USD

Page 76: An Overview of Macroeconomic  Developments in Turkey

Kibritçioğlu, November 1-15, 2004, (76/79)

Inflation and interest rates are declining gradually.

In the Turkish manufacturing industry, the labor productivity is increasing and real wages remain low, while the industrial production index is rising again.

There is still a deep unemployment problem in Turkey. Production increases are not fully translated into employment increases yet.

Excessive risk taking behavior of the banking system (in terms of the BSF index) is expected to decline towards historical averages.

Real effective exchange rates do not show an appreciation of Turkish lira anymore.

Further structural reforms, stronger privatization efforts and continuity in political stability are needed in the country.

In Turkey, it is expected that a decision of the heads of EU governments next month in favor of the start of the accession talks for full-membership in early 2005 will positively affect the Turkish economy, particularly in terms of the FDI inflows.

Concluding RemarksConcluding RemarksConcluding RemarksConcluding Remarks

Page 77: An Overview of Macroeconomic  Developments in Turkey

Kibritçioğlu, November 1-15, 2004, (77/79)

Statistical SourcesStatistical Sourcesfor Figures and Tablesfor Figures and Tables

CBRT/TCMB, Electronic Data Distribution System.

SPO/DPT, Main Economic Indicators. UT/HM, Treasury Statistics. ISE/İMKB, Annual Yerabook. IMF/IFS, IFS & DOTS. Penn World Table (PWT), 6.1 Pick’s/World Currency Yearbook

Page 78: An Overview of Macroeconomic  Developments in Turkey

Kibritçioğlu, November 1-15, 2004, (78/79)

AppendixAppendix::Selected Selected

Macroeconomic Macroeconomic Indicators for Turkey,Indicators for Turkey,

1970-20031970-2003

Page 79: An Overview of Macroeconomic  Developments in Turkey

Kibritçioğlu, November 1-15, 2004, (79/79)

Consumer Price

Inflation (%)

Real GDP Growth (%)

Change in Nominal TL/US$

Exchange Rate (%)

JP Morgan's Real Effective

Exchange Rate

(1990=100)

Absolute Change in Central Bank's

Gross Foreign Exchange

Reserves (millions of USD)

Change in Average

Crude Oil Import Price

(%)

Foreign Exchange

Deposits to Money

Supply M2 (%)

Change in Nominal Money

Supply M2 (%)

Public Sector Borrowing

Requirement to GDP (%)

Official Unemploy-ment Rate

(%)

Capacity Utilization in the Manufac-turing

Industry (%)

Istanbul Stock

Exchange's Composite

100 Index in USD

(1986=1.0)

Current Account Balance

(millions of USD)

Short-Term Capital Inflow

(millions of USD)

Actual Foreign Direct

Investment Inflow

(millions of USD)

1970 6.9 3.2 26.4 220.4 176 - 0.7 0.0 21.9 n.a. n.a. n.a. n.a. - 171 n.a. n.a. 1971 15.7 5.6 31.1 259.7 322 21.8 0.0 28.1 n.a. n.a. n.a. n.a. - 109 n.a. n.a. 1972 11.7 7.4 - 5.5 208.3 564 5.8 0.0 26.0 n.a. n.a. n.a. n.a. - 8 n.a. n.a. 1973 15.4 3.3 - 0.1 173.9 716 39.9 0.0 28.4 n.a. n.a. n.a. n.a. 484 n.a. n.a. 1974 15.8 5.6 - 1.6 131.9 - 433 159.0 0.0 25.7 n.a. n.a. n.a. n.a. - 561 n.a. n.a. 1975 19.2 7.2 3.8 123.1 - 561 21.4 0.0 28.0 4.9 n.a. n.a. n.a. - 1 648 40 n.a. 1976 17.4 10.5 10.9 118.2 57 8.2 0.0 23.4 6.9 n.a. n.a. n.a. - 2 029 73 n.a. 1977 27.1 3.4 12.3 107.4 - 331 12.5 0.0 33.8 8.2 n.a. n.a. n.a. - 3 140 968 n.a. 1978 45.3 1.5 35.0 96.2 163 - 1.0 0.0 36.5 3.2 n.a. n.a. n.a. - 1 265 402 n.a. 1979 58.7 - 0.6 27.9 74.9 - 143 37.8 0.0 61.7 7.3 n.a. 56.9 n.a. - 1 413 - 1 000 n.a. 1980 110.2 - 2.4 144.3 87.7 419 110.5 0.0 74.5 8.9 8.3 55.2 n.a. - 3 408 - 2 35 1981 36.6 4.9 46.8 93.1 - 149 - 0.2 0.0 85.0 4.0 7.3 56.7 n.a. - 1 936 121 95 1982 30.8 3.6 45.9 104.1 151 - 9.7 0.0 56.7 3.6 7.2 59.4 n.a. - 952 98 55 1983 31.4 5.0 39.2 110.0 174 - 9.7 0.0 29.8 5.0 7.9 60.3 n.a. - 1 923 798 46 1984 48.4 6.7 61.9 122.4 - 14 - 5.5 5.1 58.0 5.4 7.8 74.3 n.a. - 1 439 - 652 113 1985 45.0 4.2 42.6 122.9 - 219 - 1.2 9.0 55.5 3.6 7.3 70.3 n.a. - 1 013 1 479 99 1986 34.6 7.0 29.3 119.7 348 - 49.5 22.3 42.5 3.7 8.1 70.0 1.0 - 1 465 812 125 1987 38.8 9.5 27.2 119.3 351 27.5 31.5 45.0 6.1 8.5 77.1 4.0 - 806 50 115 1988 73.7 2.1 66.4 115.4 589 - 18.4 34.6 54.1 4.8 8.7 74.8 2.3 1 596 - 2 281 354 1989 63.3 0.3 48.6 105.3 2 524 17.9 29.5 73.3 5.4 8.7 72.8 2.6 938 - 584 663 1990 60.3 9.3 22.9 100.0 1 141 33.1 30.4 51.8 7.5 8.2 75.2 8.9 - 2 625 3 000 684 1991 66.0 0.9 60.2 102.8 - 1 054 - 20.6 44.4 63.6 10.2 7.8 74.0 5.3 250 - 3 020 810 1992 70.1 6.0 64.6 112.2 1 198 - 1.6 55.6 62.9 10.7 8.0 76.4 3.4 - 974 1 396 844 1993 66.1 8.0 60.5 107.7 97 - 14.8 69.9 48.1 12.1 7.7 79.6 5.6 - 6 433 2 994 636 1994 106.3 - 5.5 169.9 137.1 899 - 2.1 94.9 123.2 7.9 8.1 72.9 4.2 2 631 - 5 190 608 1995 88.1 7.2 53.7 131.7 5 279 7.6 99.7 99.4 5.0 6.9 78.6 5.3 - 2 338 3 635 885 1996 80.3 7.0 78.0 134.2 3 882 21.4 89.8 132.8 8.8 6.0 78.0 5.0 - 2 437 2 665 722 1997 85.7 7.5 86.8 127.2 2 146 - 8.8 97.1 93.5 7.9 6.4 79.4 7.8 - 2 638 - 7 805 1998 84.6 3.1 71.6 127.6 1 302 - 35.3 83.8 101.9 9.7 6.8 76.5 7.3 1 984 1 313 940 1999 64.9 - 4.7 61.0 128.6 3 456 41.6 82.2 96.1 15.8 7.6 72.4 8.0 - 1 344 1 024 783 2000 54.9 7.4 48.5 113.9 - 1 005 58.7 79.4 42.5 12.6 6.6 75.9 13.2 - 9 819 4 200 982 2001 54.4 - 7.5 96.5 128.9 - 3 385 - 15.7 127.9 48.0 16.2 8.4 70.9 5.1 3 390 - 11 321 3 266 2002 45.0 7.9 22.9 112.8 8 020 2.8 120.7 31.0 12.6 10.4 75.4 4.2 - 1 522 - 1 279 585 2003* 25.3 5.8 - 0.8 113.5 6 809 14.8 86.4 33.7 8.6 10.6 78.4 4.9 - 6 808 4 269 294

1970-1979 23.3 4.7 14.0 151.4 53 30.5 0.0 31.4 6.1 56.9 - 986 97 1980 110.2 - 2.4 144.3 87.7 419 110.5 0.0 74.5 8.9 8.3 55.2 - 3 408 - 2 35

1981-1988 42.4 5.4 44.9 113.4 154 - 8.3 12.8 53.3 4.5 7.9 67.8 2.4 - 992 53 125 1989-1993 65.1 4.9 51.4 105.6 781 2.8 46.0 59.9 9.2 8.1 75.6 5.2 - 1 769 757 727

1994 106.3 - 5.5 169.9 137.1 899 - 2.1 94.9 123.2 7.9 8.1 72.9 4.2 2 631 - 5 190 608 1995-1999 80.7 4.0 70.2 129.9 3 213 5.3 90.5 104.7 9.4 6.8 77.0 6.7 - 1 355 1 726 827 2000-2001 54.7 - 0.1 72.5 121.4 - 2 195 21.5 103.6 45.2 14.4 7.5 73.4 9.2 - 3 215 - 3 561 2 124 2002-2003 35.1 6.9 11.0 113.1 7 414 8.8 103.5 32.3 10.6 10.5 76.9 4.6 - 4 165 1 495 440 1970-2003 49.9 4.1 46.7 126.2 985 13.2 38.1 56.4 7.8 7.9 71.6 5.5 - 1 440 138 606

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.