Turkey » Introduction

Basic Economic Facts

Turkey's economy is a complex mix of modern industry and commerce along with a traditional agriculture sector that in 2005 still accounted for 30% of employment. Turkey has a strong and rapidly growing private sector, yet the state still plays a major role in basic industry, banking, transport, and communications. In recent years, the Turkish economy has expanded particularly strongly, registering growth rates of 8.9% and 7.4% for the 2004 and 2005 fiscal years respectively.

Turkey began a series of reforms in the 1980s designed to shift the economy from a statist, insulated system to a more private-sector, market-based model. The reforms spurred growth, but growth was punctuated by sharp recessions and financial crises in 1994, 1999, and 2001. Turkey's failure to pursue additional reforms, combined with large and growing public sector deficits, resulted in high inflation, increasing macroeconomic volatility, and a weak banking sector.

Turkey has a number of bilateral investment and tax treaties, including with the United States that guarantee free repatriation of capital in convertible currencies and eliminate double taxation. Nonetheless, foreign direct investment has totaled only $15.7 billion as of November 2002, a modest sum reflecting investor concerns about political and macroeconomic uncertainty, burdensome regulation, and a large state role in the economy. On January 1st 2005 the Turkish Lira was replaced by the New Turkish Lira, at an exchange rate of 1 new lira to 1,000,000 old. This was to demonstrate the stablisation achieved by the currency in recent years, and to help promote exchange, investment and trade.

In 2006 exports (fob) amounted to US$92bn, while imports (fob) were US$133bn, leaving a trade deficit of US$41bn. The export figures include estimates of earnings from so-called suitcase trade.

At 8.4% in December 2007 consumer price inflation has remained well above the IMF-agreed target of 4%. On the assumption that the lira does not fall further than we anticipate, that fiscal policy is tightened and interest rates are cut only gradually, and that oil prices do not rise any further, we forecast that inflation will ease to about 6% at end-2008 and 4-4.5% by end-2009.