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

1. Egyptian Economy: Challenges and Future Prospects
23-25 February 2013
Cairo/EGYPT
Performance and Applicability of
Turkey’s Transition Experience
(Turkey's Economic Success Story: A Model for Egypt?)
Prof. Dr. Erdal Türkkan
erdalturkkan@hotmail.com

2. Plan of the Presentation
1)Three Questions and Methodology
2)Short background about the Turkish Economic
History
3)Economic Performance of 2002-2012 Period
4)Factors affecting the performance of JDP Period
5)Main targets of the transition process as a
distinguishing feature of the Turkish model
6)Applicability of the Turkish economic model:
Policy Implications of nine important transition
processes.

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. 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. 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. 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. 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. 3) (Cont.)General Performance Indicators
Years 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 18,4
2002 6,2 29,7 0,9 36,0 73,2 B 10,8 -0,6 18,6
2003 5,3 18,4 1,2 47,2 67,4 B 11,0 -7,5 15,5
2004 9,4 9,4 2,8 63,1 59,2 B+ 10,8 -14,4 16,0
2005 8,4 7,7 10,0 73,4 52,3 BB- 10,6 -22,3 15,9
2006 6,9 9,7 20,2 85,5 46,1 BB- (P) 10,2 -32,2 16,6
2007 4,7 8,4 22,0 107,2 39,4 BB-(S) 10,3 -38,4 15,5
2008 0,7 10,1 19,5 132,0 39,5 BB-(S) 11,0 -41,5 16,8
2009 -4,8 6,5 8,4 102,1 45,5 BB+(S) 14,0 -13,4 13.2
2010 9,0 6,4 9,0 113,8 41,6 BB+(P) 11,9 -46,8 13,9
2011 8,5 10,5 15,9 134,5 39,2 BB+(S) 9,8 -77,2 13,3 F
2012 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. 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. 4)(Cont.)Factors affecting the Performance of
JDP Period:Policy Performance
1)Privatizations
The table below shows the evolution of the
volume of privatizations during 1985-2012.
1985-
Year 2001
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
s
Millions
$
7517 536 187 1283 8222 8096 4259 6297 2275 3085 1353 3018
Between 1985-2012 period, the amount of the
privatizations was 46, 095 billion$. We observe
that nearly 84% of privatizations has been realized
after 2002 by JDP.

11. 4)(Cont.)Factors affecting the Perceivable
Performance of JDP Period: Policy Performance
2)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 installations
3) Generalized Medicare
4) Rapid increase of purchasing power of the population thanks to
the reevaluation of the Turkish lira : GDP per capita has tripled in $
terms between 2002-2012
5)International contracting activities: 2nd Place in the World after China

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. 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. 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. 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. 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. 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. 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. 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. 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. Transition from an unstable to a
stable economy: Policy Implications
Non 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. 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. 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. 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. 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. 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. 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. 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. Thank You