1

The Economic Performance of Turkey

Ahmed ALABBADI

Mehmet SAGLAM

MSPE

Department of Economics

University of Illinois at Urbana-Champaign

2

Growth

0

10

20

30

40

50

60

70

80

90

100

1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000

Year

%

0

1000

2000

3000

4000

5000

6000

7000

8000

US

D

Consumption shareof RGDPL (%)

Investment share ofRGDPL(%)

Real GDP percapita($)

3

Inflation

Turkey suffered from high and persistent inflation since more than three decades

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

-5

5

15

25

35

45

55

65

75

85

95

105

115

125

135

145

1969.0

1

1970.0

1

1971.0

1

1972.0

1

1973.0

1

1974.0

1

1975.0

1

1976.0

1

1977.0

1

1978.0

1

1979.0

1

1980.0

1

1981.0

1

1982.0

1

1983.0

1

1984.0

1

1985.0

1

1986.0

1

1987.0

1

1988.0

1

1989.0

1

1990.0

1

1991.0

1

1992.0

1

1993.0

1

1994.0

1

1995.0

1

1996.0

1

1997.0

1

1998.0

1

1999.0

1

2000.0

1

2001.0

1

2002.0

1

2003.0

1

2004.0

1

monthly

annual

4

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

0

5

10

15

20

25

30

35

40

45

50

55

60

65

1969

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

5

Trade Policy & Balance of Payments

0.00

0.25

0.50

0.75

1.00

1.25

1969

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)

6

What happened in the past?

7

8

Public Sector Borrowing Requirement and Consolidated Budget Balance

The PSBR is a better indicator of the public sector in Turkey

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

-18

-15

-12

-9

-6

-3

0

3

6

9

12

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

Non-interest PSBR to GDP PSBR to GDP

Non-interest CB to GDP CB to GDP

9

Structure of Expenditures

The structural constraints over the Turkish fiscal policy: Interest expenditures as a ratio of tax revenues reached

103.3% by 2001

10

Financial Sector

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.

Feb. '02

Aug. '97

Feb

. '0

1

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

3.5

Jan-7

9

Jan-8

0

Jan-8

1

Jan-8

2

Jan-8

3

Jan-8

4

Jan-8

5

Jan-8

6

Jan-8

7

Jan-8

8

Jan-8

9

Jan-9

0

Jan-9

1

Jan-9

2

Jan-9

3

Jan-9

4

Jan-9

5

Jan-9

6

Jan-9

7

Jan-9

8

Jan-9

9

Jan-0

0

Jan-0

1

Jan-0

2

Jan-0

3

Jan-0

4

High Fragility BSF3 BSF2

11

Financial Sector:The Turkish Banking System

Composition of Banking Sector Balance Sheet (percent)

12

The Turkish Banking System

The most important characteristic of capital markets in Turkey is the predominance of the government securities.

13

Changing Domestic Savings and Investment

Loose fiscal policy

Rising budget deficit,

14

The Economic Performance of Turkey

Thank you...