OUTLINE

Abstract

I. Introduction

a. Significance of the Topic

b. Objective of the Paper

c. Literature Review

II. General Economic Indicators: 2002-2012

a. Growth

b. Employment Trends

c. External Trade

d. Foreign Direct Investment

e. External Debt

III. Impacts of 2008 Crisis

a. Impacts of 2008 Economic Crisis in Financial Markets

b. Impacts of 2008 Economic Crisis in Real Economy

IV. Conclusion

1
ABSTRACT

In this report explaines implemented financial discipline, structural reforms and

privatization policies after Justice and Development Party came to power in 2002. Turkey's

main macroeconomic indicators have become better conditions than other countries.

Improvement in basic economic indicators, made a contribution to the increasing in capital

inflows, provide better conditions for external debt and rising living standards. In this report

also examined applications performing during 10 years period and impacts of these

applications on other areas.

I. Introduction

2
 After Justice and Development Party came to power in 2002, Turkeys macroeconomic

indicators showed better conditions than many other countries through the implementations

policies that fiscal discipline, structural reforms, and stable privatization. Turkey has sustained

its development during global economic crisis period. Turkey had got over global economic

crisis with minimum damage due to existing structural feature of banking system in Turkey

and actors behaviors in market during economic crisis period.

a. Significance of Topic

We want to examine in this study, did Turkey develop or undevelop during 2002-2012

area.

b. Objective of the Paper

This paper shows how Turkeys development improved after 2002. This paper

examines areas that affected by development and also affected to development.

c. Literature Review

ReereDSDRESEARCH PERIOD FOCUS

012)
Ay&Karaor (2012) 2001-2005 Equally

ieklita (2012) 2002-2012 Post-2002

Birdal (2012) 2002-2012 Equally

Akdemir (2008) 2000-2007 2002-2007

zmen (2009) 1980-2008 2002-2008

Savruk (2011) 1980-2010 2002-2010

3
 Ykseler (2009) 1994-2009 Equally

Yldrm (2010) 2007-2009 2008

II. General Economic Indicators: 2002-2012

a. Growth

Turkey, between years 1990-2002, had spent time struggling with the low economic

growth, high debt amounts, unfair income distribution and high inflation. After the 2001

economic crisis, the Justice and Development Party came to power, gave importance to

democratic and economic reform program. Within the scope of liberalization of economy,

macro stability began to occur through Turkey gave priority to applications such as EU

membership process, strengthening of the financial sector, supporting private sector and

restructuring of the social security system.1

1 Suat zeren, 2001 Krizi Sonras Ekonomik Byme, stihdamdaki Gelimeler ve Beklentiler, Turkish
Economic Association, No.2012/81, Ankara, 2012, p.3-5.

4
 Declining interest rates in the economy to low levels enabled overcoming the barriers

on the investments. Decline in interest rates have a positive effect on private consumption. In

addition, strengthening the market mechanism efforts have increased, reduction of the state

share in the economy even more increased private sector role, financial sector improved for

meeting the needs of real sector, upgraded the quality of labor and enhanced the efficiency in

public services, prevented resources waste and withdrawn from production in some areas of

the public sector strengthened its regulatory and supervisory role in the market.2

Also expanding liquidity facilities in global markets after the 2001 crisis, combined

with high real interest rates in the economy of Turkey, country's economy became attractive in

terms of world market. And with the impact of the economic crisis in 2001, economy which

contracted by 5.7%, recovered in 2002 and realised 6.2% growth. Turkeys economy growth

rate ,that increased 5.3% in 2003, 9.4% in 2004, 8.4% in 2005, 6.9% in 2006, derived from

both performancing in export of goods and services and also domestic demand.3

Economy gained competitiveness, tight monetary policy depressed on inflation, tight

fiscal policy improved fiscal balances and advanced future expectations, risk premium had

fallen. After implemented tight fiscal policies, public consumption and investment

expenditures contracted, and contributing of the private sector on production had increased in

the economy. During this period, increasing in foreign investment contributed a significant

amount on production. Burden of discharging reduced and this increased investment and

capital accumulation also economic graphics of this period,underlied the burden of

discharging that defined by EU.4

2 zeren, p. 3-5.

3 zeren, p.5-8.

4 Erdal Tanas Karagl, AKP Dnemi Trkiye Ekonomisi, 2013, Ankara, p.27-29.

5
 The global economic crises in 2008 narrowed to economic growth in 2009 at the rate

of 4.8%. With the restructuring and revitalization of the real sector, that all sectors contributed

to economic growth, growth rate in 2010-2011 increased. During this period Turkeys

economy with 8.5 percent growth rate in 2011 become the worlds second fastest growing

economy after China (9.2%). The countrys economy performed annual average 5.2% real

GDP between the period 2002-2012.5

Due to the ongoing debt crisis in EU countries, constriction in the global economy,

current account deficit in 2011, Turkey's 2012 economic growth target has been relatively low

compared to 2011. First three quarters period of 2012, soft landing process started in the

economy for keeping current account deficit under control and for providing balance in

domestic and external demand improved alternative markets and exports rate slightly

increased. According to OECD estimations, Turkey will be the fastest growing country among

OECD countries with Turkey's annually growth rate 6.7% in the period 2011-2017.6

b. Employment Trends

While calculating the unemployment rate, the International Labour Organization (ILO)

standards are used in calculation methods. To calculate the unemployment rate:

Unemployment rate (%) = (amount of unemployed / total labor force) x 100.7

Rising unemployment rates with 2001 crisis revealed that, Turkeys growth structure did

not have create employment. Thus, despite sustaining economic growth occurred since the

2001, same stability could not be attained in reducing unemployment. Low level of

5 Karagl, p. 27-29.

6 Karagl, p.29-30

7 smet Demirkol, Trkiyede sizlik Sorunu,2013

6
agricultural sector share in employment area , every year participation of approximately

800.000 people to labor force, emerging current account deficit due to the growing character

that based on import, affected unemployment and unemployment rate average between 2002-

2007 has been around 10%. Justice and Development Party, in this sense, for reducing

unemployment or drop it to a certain level put a long-term goals. In the direction of

implemented incentive system begun to creation of new business areas and increasing

employment . In 2009, due to the global economic crisis, the unemployment rate increased to

14.8%.8

With the number of applications, such as; reducing labor costs and insurance

premiums to employers, tax reductions to sectors that affected by the crisis, improvement was

achieved in 2010.9

In 2011 declined to 9.8% and in the first 9 months of 2012 declined to 9.1%. During

this period, increasing export rates had played important role on one of the main sources of

this decline. Finally, when we examine the Turkeys unemployment and growth increase /

decrease rates between 2002-2012, during this period, increasing in the unemployment rate is

more than growth rate, unemployment and growth rate gap reached minimum level in 2004

and reached maximum level in 2009 and when the growth rate below 5%; large increasing

occured in unemployment rate and also determined that the last ten years unemployment rate

did not drop below 9.5%.10

c. External Trade

8 Karagl, p.52.

9 Karagl, p.53

10 Karagl, p.53-54.

7
 2001 economic crisis affected the economy significantly. When Justice and

Development Party came to power, Turkeys export performance manifested itself in the

continuous surge in total export volume which reached at 36 billion dollar in 2002; around

43.7 billion dollar in 2003; 63.2 billion dollar in 2004; 73.5 billion dollar in 2006. During the

period of 2004-2006, government undertook the Exports Strategic Plan which was a roadmap

for Turkeys new export orientation as well as by the end of 2006 while it was exceeded by

more than 10 billion. Export witnessed robust growth rates by 25.3percent in 2007 and 23.1

percent in 2008. Total volume therefore reached at 107.2 billion dollar and 132 billion dollar

in 2007 and 2008, consecutively. Due to the financial crisis erupted in 2008 however,

Turkeys main affected so total export volume decreased by a significant 22.6 percent, down

to 102.1 billion dollar in 2009. (Figure 5)11

Figure 5: Annual Export Rate

Source: Turkish Exporter Assembly

In the world, the balances have changed with the affects of global economic crisis. Less

developed emerging markets was demanded. Turkey foreign policy decisions, accordance

11 Mehmet Babacan, Whither Axis Shift: A Perspective from Turkeys Foreign Trade, SETA:
Foundation for Political, Economic and Social Research: Report no:4, November 2010, p.8-9.

8
with economy, started to be implemented. Because of the government expansion to the

Middle East and Africa, the trade relations have developed with these countries. Turkeys

vibrant economy and democratic reforms have increased its soft power in the region and made

it particularly attractive for reformers. The argument around the so-called axis shift might

seem to be well fitting into Turkeys changing foreign trade scheme as the number of new

export destinations and the significant rises in Turkeys bilateral trade volume with Latin

American, African and Mid-Eastern countries as well as China could display such a case.12

In 2011, the period which economic growth tend to slowing down, due to a contraction of

domestic demand producers tend to external demand and has been an increase in the amount

of export. The depreciation in TL affects the gain competitiveness in world markets and the

increase in the export. All during the year of 2012, export become the source of growth in

Turkish economy. After 2002, the export quantity has contiuous increased except the global

economic crisis term. While in 2002 the export quantity was 36 billion dollar, it reached 152.6

billion dollar in 2012.13

Turkeys imports continuous increase year by year, biggest portion in imports have

mineral fuels and oils in 2007 and rest of imports as follows respectively; machineries,

mechanical appliances and boilers, iron and steel, electrical machinery and equipment and

vehicles were main imports for Turkey. Import rate was 54.5 billion dollar in 2000. But after

the 2001 economic crisis, import reduced to 43.13 billion dollar. After 2002, import has began

increased. The most important uptick in the import become 69.3 billion dollar and 97.3 billion

dollar in 2003 and 2004. In 2005, import rate reached 110 billion dollar. In 2009, Turkeys

12 Erdal Tanas Karagl, Ak Parti Dnemi Trkiye Ekonomisi,2013,Ankara,p. 75-77

13 Sevim Akdemir, Fatih Konur, Trkiyede D Ticaretin Geliimi, 2. Ulusal ktisat Kongresi ,
DE BF ktisat Blm, 2008, p. 2-5.

9
imports decreased by 30 percent due to global crises. In 2010, Turkeys imports have raised to

185.5 billion dollar.14

d. Foreign Direct Investment

There was an extreme rise of freign direct investment in Turkey after 2002. The reason

for this increment was the reform made in economy and stable preferences continue according

to economy. The reforms have saved the government from sum of their works and increase

the financial sector. For his reason, it is important to make stanbul the center of finance in

order to stable and express the economic success. stanbul plays a big role to become

international financial center.15

The strategy of foreign direct investment must pull foreign investments. Turkish

economy has markets and wide telecommunication network due to being internal market and

possession advantageous geographical position. Creating new employment areas and

increasing capital stock based on advanced technology, FDI can also make significant

contributions to economic growth. As FDI requires technology and technological know-how,

it can have a two-dimensional effect on the economy; both directly, and indirectly. As it also

includes direct ownership control, it may affect growth through R&D activities, direct

technology transfer, enhancement of opportunities for human resources, and productivity.

These are remarkable for the sustaining development and high-tech manufacturing because of

lack of domestic saving in Turkey.16

14 Burak Savrun, Financial Development, International Trade and Economic Growth: The Case of
Turkey,2011, p.18-20

15 Erdal Tanas Karagl, Ak Parti Dnemi Trkiye Ekonomisi,2013,Ankara,p. 68-70

16 mit zmen,Kamil Ylmaz, Turkeys Recent Trade and The Foreign Direct Investment
Performance,2009,stanbul,p.19-22

10
 Before 2001, Turkey cannot be adequate for attract foreign capital. After 2002,

reconstruction started in the economy especially banking sector. There was high growth in

foreign direct investment. In 2007, Turkey has highest foreign investment as 22 billion dollar.

Turkey has been less affected in global economic crisis but there has beendecline in foeign

direct rate. In 2009, foreign direct investment increased with financial infrastructure and

resistant structure of economy. Turkey has 110 billion dollar foreign investment in the last 10

years and Turkey achieved the most attractive 13th country of world. (Figure 6)17

Figure 6:Annual FDI Rate

17 Erdal Tanas Karagl, Emin Erakr, Trkiyede Dorudan Yabanc Yatrmlar, Seta
Analiz,No.13,2011,p.9-20

11
Source: Turkish Republic Central Bank

The share of energy and automotive sectors investments in the international direct

investment increased. The cheap labor, access to markets become effective for the

determination of investment. New incentive law began to implemented in 2012. Within this
18
law, due to increasing peace and security, foreign direct investment also will increased.

e. External Debt

In Turkeys economy the problem of external debt has continued for many years. The

increas in the amount of debt prevented the foreign investors to invest because of the higher

tax. It caused the reduction of investment, and decrease the capacity of the debt repayment of

country and reduction of foreign capital inflow. On the other hand, real interest rates and

exchange rates increased significantly. Due to this increases, the payment of the debt burden

of country has increased for many years. During these years; bribery, corruption, and misuse

of privatization policies and misuse of economic measures become widespread with political

instability and management crisis. This situation caused the reduction of capital inflow. The

debt burden increased with the existing crises.19

18 Karagl,Erakr, p.20-22

12
 Justice and Development Party succeed the reduction of the external debt rate in the

GDP, and provided the repayment of debt. This policies implemented since 2002. While

external debt was 130 billion dollar in 2002, it reached 340 billion dollar this year. In the

Justice and Development Party term, 210 billion dollar of new foreign loans have been taken;

foreign debt has increased by 162 percent.Thanks to the system of indirect taxes and

unlimited privatizations, the public debts remained at 103 billion dollar. Public debt stock,

including domestic debt, is 40 percent of the national income. External debt of private sector

increased from 43.1 billion dollar to 226 billion dollar in Justice and Development Party

term.20

In 2002, Turkish gross domestic product (GDP) stood at $230 billion with the local

and external debt/GDP ratio at 75 percent. This rate declined to 36 percent in 2012 when GDP

was $786.3 billion.Turkey ended its Internal Monetary Fund debt last year by paying its last

installment. Turkey is one of the countries which contribute financially to the IMF with a 5

billion dollar contribution.21

19 Erdal Tanas Karagl, Ak Parti Dnemi Trkiye Ekonomisi,2013,Ankara,p. 45-46

20 Karagl,p.46-48

21 Mustafa Snmez, Turkeys IMF Debt to Paid Off, Foreign Debt Stock Still on
ncrease,hurriyetdailynews,2013 http://www.hurriyetdailynews.com/turkeys-imf-debt-
to-be-paid-off-foreign-debt-stock-still-on-increase.aspx?
pageID=238&nID=46647&NewsCatID=344

13
III. Impacts of 2008 Crisis

Global economic crisis began in USA mortgage market in mid 2007. Global economic

crisis affected the entire financial sector, spread throughout the world in a short time and

affected every country.22

Although 2008 economic crisis started in USA on August mid 2007, Turkey was

affected by global economic crisis on October 2008. 2008 economic crisis affected Turkey

indirectly. The effects of global economic crisis in Turkey distinguished itself in financial

markets and real economy.23

a. Impacts of 2008 Economic Crisis in Financial Markets

Effects of global economic crisis were seen firstly in financial markets.24

Although 2008 economic crisis started in USA on August mid 2007, stock exchange

had rose until December 2007 in Turkey. After January 2008, stock exchange had downed

because of global economic crisis began fell its impact.25

Turkish currency had appreciated more than in second half of 2008 to second half of

2007. Turkish currency had depreciated after October 2008 because of global economic

crisis.26

22Sreyya Yldrm, 2008 Yl Kresel Ekonomik Krizinin Dnya ve Trkiye Ekonomisine Etkileri, KM
Sosyal ve Ekonomik Aratrmalar Dergisi,No.12, Balkesir, 2010, p.47.

23Yldrm, p.47.

24 Yldrm, p.49.

25 Yldrm, p.49.

26 Zafer Ykseler, Trkiyede Kriz Dnemlerinde Ekonomik Gelimeler ve demeler Dengesi

Uyumu, 2009, p.20.

14
 Consumer Price Index had increased more than 2008 to 2007. Consumer Price Index

occured 10.6 percent on first half of 2008. Consumer Price Index had declined and it occured

10.1 percent on November 2008. As a result, Consumer Price Index had declined and it

occured 5.9 percent at the end of May 2009 because of the global economic crisis an

especially decline price of crude oil and basis goods.(Figure 7)27

27 Ykseler, p.20.

15
 Figure 7: Global Crisis: Consumer Price Index (Annual %)

Source: www.tcmb.gov.tr
Avarage Government Debt Securities compound interest rates had declined more than

in first half of 2008 to first half of 2007. They occured 18.1 percent. However, they had

increased after March 2008 and they occured 20 percent on June 2008. Government Debt

Securities compound interest rates had continued to rise and it occured 21.5 percent on

October 2008 because of global economic crisis. Interest rates were showed a falling tendency

and interest rates occured 13 percent on May 2009.In 2008 economic crisis period, interest

rates had shown increase in a short term unlike other crisis periods.(Figure 8)28

Figure 8: Global Crisis: Government Debt Securities Compound Interest Rates (Annual %)

28 Ykseler, p.22-23.

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 b. Impacts

of 2008

Source: www.tcmb.gov.tr
Economic Crisis in Real Economy
Global economic crisis took effect in real economy.29
Especially global economic crisis affected sectoral growth rate and GDP. When GDP
had increased at the rate of 6.9 percent in 2006, GDP showed decrease and it had increased at

the rate of 4.6 percent in 2007. The growth rate in GDP had continued to decline and it had

increased at the rate of 0.9 percent at the end of 2008. When growth rate in agricultural sector

occured at the rate of 1.4 percent in 2006, growth rate in agricultural sector had declined at the

rate of 6.9 percent in 2007. For this reason, share of agricultural sectorin GDP had declined.

Growth rate in industry sector occured 8.3 percent in 2006. Growth rate in industry sector

occured 5.8 percent and it occured 1.1 percent in 2008 because of global economic crisis. In

manufacturing industry which is significant indicator of industry sector, growth rate occured

8.4 percent in 2006. It occured 5.6 percent in 2007 and it occured 0.8 percent in 2008 because

of global economic crisis. That situation demonstrated that incestment and production and

production rate had declined because of negative developments of industry sector. Growth

rate in service sector occured 7.2 percent in 2006. It occured 6 percent in 2007 and 0.4 percent

in 2008 because of global economic crisis.(Figure 9) 30

29Yldrm, p.50.

30 Yldrm, p.50-51.

17
 Figure 9: Growth Rate

... : Some datas which are in original source are not written.
Source: TSI
Capacity usage rate of manufacturing industry and changes in capacity usage rates

affect real economy. 2007-2008 capacity usage rates of manufacturing industry had declined

more than May 2008 to May 2007. When capacity usage rate occured 82.6 percent on

November 2007, capacity usage rate occured 72.9 percent on November 2008.(Figure 10)31

31 Yldrm, p.51.

18
 Figure 10: Capacity Usage Rate

Source: TSI
Number of stores which are opened and closed affects real economy. According to

Table, 4126 companies were established on October 2007 and 3026 companies were

estabished on October 2008. In other words, number of companies which were established

had declined at the rate of 26.7 percent.32

Although number of employed person was increased more than August 2008 to August

2007, number of unemployment person did not decrease. On the contrary, number of

unemployment person increased by 207.000. Number of unemployment person was 2.232.000

on August 2007. Number of unemployment person had increased and it was 2.439.000 on

August 2008. In other words, unemployment rate was 9.2 percent on August 2007 and it was

9.8 percent on August 2008.33

Confidence index was 101.2 on November 2007. It decreased and it was 54.6 on
November 2008. This situation showed that panic in business.34
Turkey had got over global economic crisis with minimum demage due to the

structural reform.35

IV. Conclusion

32 Yldrm, p.51-52.

33 Yldrm, p.52.

34 Yldrm, p.52-53.

35 Trkiye Krizi Nasl Atlatt?, http://www.internethaber.com/turkiye-krizi-nasil-atlatti-

231014h.htm (15.12.13)

19
 Turkey's economy showing a successful economic growth of 5-6% growth in the last

10 years except for the effects of the global economic crisis in 2009. And with this

performance Turkey become one of the fastest growing countries among OECD countries. At

the same time, Turkey made advances in the field of information technology, education and

science for the continuation of stable economic growth. Exited from the global financial crisis

in 2008 in a short time and in the implementation of economic policy Debt / GDP and

Deficit / GDP ratios of healing and strengthening the capital of banks has a significant share.

In the current global economic uncertainty, fiscal and monetary policies implemented

correctly also brought stable economic growth. This stability trend of Turkey's economy has

hindered from affected by external shocks arising from the deterioration in the global

economy.

20
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