Turkey economic success story: a model for Egypt?

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This presentation was given by Dr. Erdal Türkkan, Chairman of the Competition Association, Turkey in the Seminar: "Achieving economic growth in the periods of democratic transition:
experience of Poland and Turkey” on Sunday, February 24, 2013 at the Faculty of Economics and Political Science, Cairo University - Egyptand the Conference: “Egyptian economy: challenges and future prospects” from February 23 to 25, 2013 at Ain Shams University - Egypt

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Turkey economic success story: a model for Egypt?

  1. 1. Egyptian Economy: Challenges and Future Prospects 23-25 February 2013 Cairo/EGYPT Performance and Applicability of Turkey’s Transition Experience (Turkeys Economic Success Story: A Model for Egypt?) Prof. Dr. Erdal Türkkan erdalturkkan@hotmail.com
  2. 2. Plan of the Presentation1)Three Questions and Methodology2)Short background about the Turkish EconomicHistory3)Economic Performance of 2002-2012 Period4)Factors affecting the performance of JDP Period5)Main targets of the transition process as adistinguishing feature of the Turkish model6)Applicability of the Turkish economic model:Policy Implications of nine important transitionprocesses.
  3. 3. 1)Three Questions• a- Does Turkey have an economic success story?• b-How we can define the Turkish economic model?• c-May the Turkish model be a model for Egypt?
  4. 4. 1)(Cont)Methodology• Here we must underline the importance of the concept of transition:• Economic success can be evaluated by the nature, speed and efficiency (benefit/cost) of the transition process and related policy performance.• Economic Model may be defined by the nature and priorities of targeted transitions and policy constraints which determine policy choice and policy performance .• Applicability of the model may be evaluated by the possibility of the realization of the policy implications of the same targeted transitions under different policy constraints.
  5. 5. 2)Background: Periods of Success and Failure in the Turkish Economic History• It is possible to adopt the following periods:• Ottoman Period(1299-1922) After XVIII. Century: Mostly unsuccessful• The first years of the Republic (1923-1930): Mostly Successful• Statist Period (1933-1938): Mostly Successful• Second World War(1939-1945) and After War Period (1945- 1950): Mostly Unsuccessful• Period of Democratic Party(1950-1960):Partly successful• Planned Development Period(1963-1983):Partly successful• Open Economy and Liberalization Period(1980-1993): Part.S• Successive Crises Period(1994-2001):Unsuccessful• JDP or Ak Party and Economic Stabilization and Maturation Period (2002-2012): Mostly successful
  6. 6. 2)Background: Role of the crises in successful new orientations• Up to the 1980’s Turkish economy may be considered as a closed mixed economy based on highly interventionist economic policies.• After World Petroleum Crisis in 1970’s, Turkey has experienced a severe economic crisis which is considered as a result of inward looking policies.• Since 1980’s we can identify several interrelated transition processes which represent different aspects of structural and political changes.• During 2000-2001, Turkey has again experienced another severe economic crisis which is considered as a result of political instability and ended with the political victory of newly established Justice and Development Party (JDP) or Ak Party.
  7. 7. 3)Performance Evaluation of JDP Period (2002-2012 )• Successes:• Relatively low and decreasing inflation rates• Relatively high and steady growth rates• Relatively rapid increase of exports• Decreasing external and internal public borrowing• Relatively rapid amelioration of social welfare.• Increasing endurance against external and internal chocks and increasing international credibility.• Weaknesses-Failures• Persistence of relatively high current account deficit• Persistence of relatively low saving rates• Persistence of relatively high unemployment rates• Persistence of relatively high external borrowing of private sector
  8. 8. 3) (Cont.)General Performance IndicatorsYears Growth Inflation* Direct Exports General Credit Unemploy Current Domestic Rates** * Foreign Billion Public Debt Ratings ment Account Savings/ Capital $** Stock as % Fitch rates Deficit GDP* Billion$ of GDP Billion $ T(EU Def.)2001 -5,7 68,5 2,8 31,3 B 8,9 3,7 18,42002 6,2 29,7 0,9 36,0 73,2 B 10,8 -0,6 18,62003 5,3 18,4 1,2 47,2 67,4 B 11,0 -7,5 15,52004 9,4 9,4 2,8 63,1 59,2 B+ 10,8 -14,4 16,02005 8,4 7,7 10,0 73,4 52,3 BB- 10,6 -22,3 15,92006 6,9 9,7 20,2 85,5 46,1 BB- (P) 10,2 -32,2 16,62007 4,7 8,4 22,0 107,2 39,4 BB-(S) 10,3 -38,4 15,52008 0,7 10,1 19,5 132,0 39,5 BB-(S) 11,0 -41,5 16,82009 -4,8 6,5 8,4 102,1 45,5 BB+(S) 14,0 -13,4 13.22010 9,0 6,4 9,0 113,8 41,6 BB+(P) 11,9 -46,8 13,92011 8,5 10,5 15,9 134,5 39,2 BB+(S) 9,8 -77,2 13,3 F2012 2,5* 6,2 20,0 151,9 36,6 BBB-(S) 9,1 F -48,5 12,7 F*SPO Statistical Indicators ; **Turkstat; T Treasury; F:Forcast ; P:Positive Outlook ;S:Stable Outlook
  9. 9. 4)Factors affecting the Performance of JDP Period: Policy Choices• Adoption of medium and long-term project and program based approach (2023 Vision).• Tight budget policy and continuous austerity measures• Acceleration of privatizations• Rapid elimination of bottlenecks in physical and social infrastructure (Transportation, communication, energy, irrigation, housing, he alth, education, justice)• Generalization of social security and Medicare system• Priority given to informatization (E-State) and R&D in defense industry• Export promotion in new markets.• Encouragement of foreign capital entry• Encouragement of SME’s in underdeveloped areas• Harmonization of existing regulations with EU regulations.
  10. 10. 4)(Cont.)Factors affecting the Performance of JDP Period:Policy Performance1)PrivatizationsThe table below shows the evolution of thevolume of privatizations during 1985-2012. 1985-Year 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012sMillions$ 7517 536 187 1283 8222 8096 4259 6297 2275 3085 1353 3018Between 1985-2012 period, the amount of theprivatizations was 46, 095 billion$. We observethat nearly 84% of privatizations has been realizedafter 2002 by JDP.
  11. 11. 4)(Cont.)Factors affecting the Perceivable Performance of JDP Period: Policy Performance2)Physical and Social Infrastructure: Perceivable Performance Indicators• Construction of 15.700 km divided highways• Number of air passengers : From 8,5 million to 120 million.• Initiation of High Speed Train• Construction of 160.000 Classrooms (1/3 of the total)• Assignment of 1/3 of the total teachers• Construction of 544.000 new housings by TOKI (Gov. Org)• Construction of 206 New Dams• Construction of 893 new sanitary installations3) Generalized Medicare4) Rapid increase of purchasing power of the population thanks tothe reevaluation of the Turkish lira : GDP per capita has tripled in $terms between 2002-20125)International contracting activities: 2nd Place in the World after China
  12. 12. 4) (Cont.)Policy Performance: Recognition of Candidate Status• 1999 : The candidate status was recognized for Turkey in Helsinki.• The EU leaders agreed on 16 December 2004 to start accession negotiations with Turkey as of 3 October 2005. EU accession negotiations were officially launched.• Realization of Screening Process, 2004-2005• 2005 – Opening of 6 chapters of the Acquis: Right of Establishment & Freedom to Provide Services, Company Law, Financial Services, Information Society & Media, Statistics and Financial Control.• 2006 – Chapter on Science & Research was opened and closed.• 2006 – Continued dispute over Cyprus prompts the EU to freeze talks on 8 chapters and state that no chapters would be closed until a resolution is found.• 2007 – Chapter on Enterprise & Industrial Policy was opened.• 2007 – Chapter on Statistics & Financial Control was opened, but the opening of the chapter on Economic & Monetary Policy was blocked by France.• 2007 – Chapters on Health & Consumer Protection and Trans-European Networks were opened.• 2008 – Chapters on Company Law and Intellectual Property Law were opened.• 2008 – Chapters on Free Movement of Capital and Information Society & Media were opened.• 2009 – Negotiations were opened on the chapter of Taxation.• 2009 – Chapter on Environment was opened.• 2010 – Chapter on Food Safety, Veterinary & Phytosanitary Policy was opened.
  13. 13. 4) (Cont)Constraints Affecting the Performance of the Transition• Constraints of past achievements and existing human resources• Legal Constraints: Existing constitutional order and legal system• Energy dependency and natural endowment constraint• Past policy constraint ( Positive impact of crisis in the radical changes in past government policies)• Importance of democratic constraints :Requirements of free elections• Importance of globalization and external competition constraint in strategic orientations• Constraints created by the Customs Union and full-membership perspective with the EU• Economic political and social stability constraint required by credit rating• Efficiency constraints: Importance of simultaneous policy requirements• Social constraints related to governance and public opinion support in important political changes• Technical constraints related to interrelations and dependencies between different targeted transition processes• Technical constraints related to spontaneous and induced structural changes
  14. 14. 5)Main Targets of transition process as a performance indicator and as a distinguishing feature of the Turkish model• Transition from a statist (mixed economy) to a free market economy.• Transition from a closed to an open economy• Transition from a non-stable to a stable economy• Transition to an integrated economy: EU membership Transition from a socially unstable economy to socially balanced economy.• Transition from a traditional agricultural economy to a modern agricultural sector.• Transition from a non- competitive industrial sector to a competitive industry• Transition to an efficient service sector• Transition from a geographically polarized economy to a depolarized economy
  15. 15. 5)Main Characteristics of the Turkish Model• Turkish model may not be considered as a country specific model. It is mostly a variety of well defined, open, competitive and stable free market economy model based on economic freedoms.• Turkish model is based on the optimal extension of economic freedoms under the constraints imposed by legal order, parliamentary democratic system, natural endowments, past achievements, membership to the European Union ; international competition and conjuncture and other technical constraints related to the efficiency of the transition process.• Each constraint creates some threat as well as some opportunity for the realization of political changes.• The logic of the model is the equalization of Marginal economic, social and political benefits and Marginal economic social and political costs.• Absolute level of economic freedoms and desired structural efficiency have not yet reached targeted levels: The transition
  16. 16. 6)Applicability of the Turkish Economic Model: Policy Implications of Nine Important Transition Processes• Economic and political benefits of targeted transitions are similar and comparable for developing countries facing similar constraints.• International conjuncture which determines the benefits and costs of the transition is mostly the same for each developing country.• Technical constraints related to interrelations and dependencies between different transition processes are the same for each developing country.• Policy implications of transitions are similar for each developing country.• Differences in the past achievements might change priorities and the speed of the transition.• Economic, political and social feasibility of political transformations and costs of the transition may differ from one country to another.
  17. 17. Transition from statist (mixed economy) to a free market economy:Background• Statist regime was effective in Turkey between 1930- 1980 period, which covers: First Statist Period (1931- 1938); Second World War (1939 -1945) and After War Period (1945-1950); Democratic Party Period (1950- 1960); Planned Economy Period 1960-1980.• During 1930-1980 period we observe not only a rapid development of the statism but also a progressive development of the market economy.• We observe also a variation in the nature of statism during 1930-1980 period. For example 1950-1960 period might be considered as a market economy implementation with some statist variation.
  18. 18. Policy Requirement of Statism and Free Market Economy• Statism • Free Market Economy• Semi-compulsory bureaucratic central planning • Indicative and coordinative planning• Government priority is industrial production • Government priority is physical and social infrastructure• Nationalizations and creation of new SEEs • Privatizations• Non neutral incentive system (officially • Neutral incentive system determined priority sectors and projects)• Systematic interventions to the price system • Determination of prices in the market• Governmentally regulated natural and legal • Establishment of independent regulatory monopolies bodies for natural monopolies • Establishment of an independent• Lack of competition policy competition authority (anti- monopoly agency).• Existence of bureaucratic entry barriers • Elimination of bureaucratic entry barriers• Highly regulated, controlled and rigid capital • Liberalization of capital markets markets• Highly regulated, controlled and rigid labor • Liberalization of labor markets markets • Liberalization of the exchange regime• Prohibitive and rigid exchange regime • Liberalization of imports• Protectionism and import substitution policy
  19. 19. Transition from a closed to an open economy: Policy Implications• Closed Economy • Open Economy• Statist, socialist or country specific • Workable competitive market economic system economy• Import restrictions (protectionism) and • Liberalization of imports import substitution policy• Controlled and fixed exchange regime • Liberal exchange regime and convertibility• Controlled foreign capital entry • Liberalized foreign capital entry• Multi-functional Central Bank and more • Independent Central bank and tight flexible monetary policy monetary policy• Country specific regulation • Universal and foreseeable regulations and regulatory competition• State Regulations for specific markets • Independent regulatory bodies for market regulation• State aids based on country specific rules • State aids based on universal rules• Medium or adapted technology transfer • Transfer of advanced technologies policy• Limited R&D activities • Extended R&D activities• Limited infrastructure • Developed infrastructure• Low quality labor training policy • High quality labor training policy
  20. 20. Transition from an unstable to a stable economy: Background• Turkey has experienced high (double and triple digit) and persistent inflation after the second half of the 1970’s despite successive IMF backed stabilization programs and austerity measures. Annual inflation rate was around 29,7 percent in 2002.• One digit inflation performance has been reached after the second half of 2000’s.• Inflation rate was down to 6,4 percent in 2010, the lowest rate since 1969.• At least a one-digit inflation is a necessary condition: *For the well-functioning of the free market economy *For an open economy *Low level of inflation is also a necessary condition for full-membership to the EU *At the same time economic stability is a necessary condition of the democratization of the economy
  21. 21. Transition from an unstable to a stable economy: Policy ImplicationsNon Stable Economy Stable Economy• Large PSBR and over-borrowing due to: Limited PSBR and borrowing due to: *Big size of budget deficits of central and • Administrative reform , public expenditure local administrations reform and tax reform accompanied by tight *Actuarial disequilibrium of Social Security budget policy and continuous primary System budget surplus. *Large and deficient public sector (SEEs) • Social security reform and improvement of the actuarial equilibrium of SSI (Social *Irrational agricultural price support and Security Instritution) encouragement policies • Resource generating privatization policy• Insufficient level of savings and insufficient deepness of capital markets • Rationalization of encouragement system • Attraction of more foreign capital• Importance of infrastructural investments • Extension of Built Operate and Transfer with long realization and gestation period method for infrastructural investments• Low level of independence of Central Bank • Independence of Central Bank• Lack of effective monopoly regulation • Effective anti-monopoly regulation• Large informal economy • Limitation of informal economy• Short term and incomplete stabilization • Implementation of medium-term and programs due to: effective stabilization programs and austerity measures thanks to political *Lack of a social consensus and dialogue stability mechanism *Political uncertainty and populist attitudes
  22. 22. Transition to an integrated economy: EU Membership• Open Economy • Economy Integrated to the EU• Workable democracy • Advanced democracy (Copenhagen Criteria) and full respect to Human Rights• Workable competitive market economy • Functioning competitive market economy (Copenhagen Criteria)• Liberalization of imports • Customs Union, Free Circulation of goods and services and Common Customs System • Free Circulation of Capital• Liberalized foreign capital entry • Free Circulation of Labor• Liberalization of labor markets • Adoption of Copenhagen Criteria• Independent Central Bank and tight monetary policy and fiscal policy• Universal regulations • Common regulations and harmonization of regulations• Independent regulatory bodies for market • Harmonization of regulations of independent regulation regulatory bodies • State aids conformity to European Rules• State aids based on universal rules • Adoption of common technology policies• National Policies for the transfer of advanced technologies and R&D activities• Developed infrastructure • Adoption of common infrastructure policies• Macro-economic stability policy • Adoption of Copenhagen Criteria in macro- economic stability
  23. 23. Transition from Traditional and Dualistic Agricultural Economy to a Modern Agricultural Sector• Dualistic Agriculture • Modern Agriculture• Large discrepancy between share of agricultural • Convergence and diminution of the share of population in total population and share of agricultural agricultural population and agricultural production production in total production• Co-existence of traditional (self sufficient) and market • Dominance of market oriented, modern, privately oriented, modern (privately and publicly owned) owned production units production units • Dominance of optimally sized production units• Dominance of non-optimally sized production units • High and efficient level of mechanization, irrigation• Low and inefficient level of mechanization, irrigation and and fertilization fertilization • Dominance of legal, private and well registered• Dominance of collective or common and legally disputed property regime and aggregated land property or unregistered ( illegal) property regime and dispersed land property• Poor physical, social and agricultural infrastructure • Developed physical, social and agricultural (irrigation) infrastructure• Limited external marketing and competition • Large external marketing and competition• Limited input-output relation with local industry • Important input-output relation with local industry• Irrational and ineffective government intervention in the • More rational and effective government resource allocation process interventions in the resource allocation process• Obligatory restructuration and redistribution of lands • Voluntary restructuration of lands• High share of fallow in cropped area • Low share of fallow in cropped area• Dominance of usurious credit system • Dominance of banking credits system• Limited R&D and formation activities • Extended R&D and formation activities
  24. 24. Transition from Non Competitive Industrial Sector to a Competitive Industry• Non-Competitive • Competitive• Statist and interventionist policies • Free market liberal policies• Inward oriented protectionist policies • Outward oriented open economy policies• Inward looking national service sector • Modern service sector policies• Inward looking non-competitive • Outward looking competitive agricultural agricultural policies policies• Cheapest technology transfer policy and • High technology transfer and R&D policies limited protection of industrial property and effective protection of industrial rights property rights • Effective social and physical infrastructure• Bottlenecks in social and physical • Extended economies of scale and scope infrastructure• Limited economies of scale and scope • Localization in organized industrial sites and formation of clusters• Localization in unorganized or isolated • Well-organized and well-regulated flexible industrial sites and lack of clusters. labor markets • Well-regulated deep capital markets• Unorganized or unflexible labor markets• Unflexible shallow capital market
  25. 25. Transition to an efficient Service Sector• Inefficient • Efficient• Existence of State Monopolies • Privatization of State Monopolies and or (Telecommunication, air and rail abolition of entry barriers transport, radio-TV, energy)• Vertical integration of network industries • Separation of production, transportation (communication , energy, railways) and production in network industries• Centralized public services • Decentralized public services (healthcare, education)• Dominance of retail trade • Dominance of hyper and supermarkets• Limited outsourcing of services in industry • Generalized outsourcing of services in industry• Limited franchising activities • Developed franchising activities• Limited social and private insurance system • Extended insurance system• Existence of entry barriers for foreign capital • Elimination of entry barriers for foreign capital• Limited informatization • Extended informatization• Bureaucratic regulation of network • Regulation of network industries and industries sensible sectors (Banking –Insurance ) by independent regulatory bodies
  26. 26. Transition from a Socially Unstable Economy to Socially Balanced Economy• Socially Unstable • Socially Stable• Increasing deterioration of income distribution • Decreasing deterioration of income distribution• Increasing unemployment and unsustainable growth • Decreasing or stable unemployment and steady rates sustainable growth• High immigration and urbanization rates and high • Optimal immigration and urbanization housing deficit• Underdeveloped social infrastructure • Developed social infrastructure *Low education level *High education level *Deficient sanitary services *Efficient sanitary services *Partial social security system *Generalized social security system• Inefficient and inadequate justice system • Efficient and independent justice system• Lack of generalized social security system • Decentralized democratic public administration• Centralized authoritarian public administration and and political system political system • Modern agriculture• Agriculture highly dependent on climatic conditions• Poor Non-Governmental Organizations • Developed Non-Governmental Organizations• Highly heterogeneous cultural , religious and ethnic • Pluralistic society based on common values. structure of the population and lack of common values
  27. 27. Transition from a Geographically Polarized Economy to a Depolarized Economy• Polarized • Depolarized• Non saturated spontaneous • Saturated spontaneous polarization level polarization level• Limited economic relations • Important economic relations with neighboring countries with neighboring countries• Unequal and inefficient • More equal and efficient geographic distribution of distribution of physical and physical and social social infrastructure infrastructure• Centralized public services • Decentralized public services• Positive discrimination for • Positive discrimination for developed regions in the underdeveloped regions in distribution of public aids the distribution of public aids (Encouragements) (Encouragements)
  28. 28. Conclusion• We can say that the overall performance of the Turkish economy during the JDP government is relatively satisfactory. But if the increasing votes obtained by JDP in three successive elections(2002,2007,2011) may be considered as an indicator of economic success, JDP’s perceived economic performance may be considered as an outstanding success.• Turkish economic model may be defined as a model targeting transition to an open, competitive and stable free market economy based on economic freedoms under the constraints imposed by the parliamentary democratic system, natural endowments, past achievements, the European Union and international competition and conjuncture etc.• Turkish model of transition is applicable to other developing countries including Egypt. But each country faces different legal, political, social, economic and international constraints.• The differences of constraints may increase or decrease social costs and benefits of the different policies.
  29. 29. Thank You

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