Turkey Seeks Economic Discipline

Article excerpt

With a clear eye to future membership of the European Union, Turkey's Central Bank is trying to bring inflation under Control and give the country much-needed Economic discipline. The bankers have a tough brief, caught between Islamic leftists and the conservative and nationalist military establishment.

To listen to Turkish Central Bank governor Gazi Ercel tell it, Turkey is about to realise economic reforms that have so far eluded governments of both the left and the right. In recent presentations within Turkey, and in meetings with western bankers and investors, Ercel points to reduced inflation, a controlled devaluation of the Turkish lira, budget surpluses, and a renewed push to complete the privatisation of the government's once-vast industrial holdings.

"Turks are amazed that their economy is booming, despite all its problems," says Nuket Kardam, an international consultant and associate professor at the Monterey Institute of International Studies in California.

The Turkish government makes no secret of the fact it wants a disciplined economy, free from the high inflation and wild swings in economic performance which have plagued it over the past two decades.

This year has been good. If current rates hold, Turkey could enjoy its best economic performance in over a decade, with economic growth of 5.5 per cent, inflation down from 70 per cent in 1999 to 24 per cent this year, and a narrowing of the country's chronic trade deficit.

Moreover the government is expected to complete the privatisation of more than $7 billion in state-owned assets this year (the largest annual figure since the late Turgut Ozal launched the policy back in the 1980s). Most significantly, the privatisations will include a 20 per cent tranche of Turk Telekom, the state-owned phone company, accompanied by laws liberalising the energy and telecom sectors.

However, for all this progress there are still major stumbling blocks. Most important is the persistence of high unemployment. The official figures show unemployment at 5.9 per cent, with an additional 5.1 per cent "underemployed". However, western economists believe the real unemployment figures are close to double that. For those who are working, pay has often failed to keep pace with inflation, resulting in a significant drop in the living standards of many Turks.

Government officials and business leaders say this is necessary to end decades of economic turmoil created by high inflation. Indeed, as with many other IMF-prompted economic programmes, Turkey places more emphasis on "disinflation" and privatisation than on employment and higher wages.

This could spell trouble for an already weak coalition government, which faces potentially destabilising challenges from the leftist Islamic Welfare Party, as well as from the country's large and volatile Kurdish minority.

The government's hope is that inflation can be brought down to single digits in 2001, and that western banks will be attracted to make significant investments in the newly liberalised and privatised economy.

The government also wants to see significant progress over the next year in its efforts to join the European Union, enhancing its attractiveness to foreign investors.

This is a far cry from Turkey's outrage when the EU postponed membership talks in 1998, arguing that the country's parliamentary institutions and economic record were not up to European standards. At the time, Turkey announced that it would turn East, fostering ties with the Turkic republics of Central Asia and the Arab states of the Gulf. But Turkey's dependence on Europe, both in trade and for capital, mandated a return to the negotiating table.

The government has gone to great lengths to win the hearts and minds of the Europeans. Relations with Greece, long seen as the major stumbling block to Turkish EU membership, have been carefully nurtured, starting with the assistance each country offered the other following devastating earthquakes in 1999. …