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Mustafa Kutlay
USAK Center for EU Studies |
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Thursday, 18 March 2010
The Turkish government finally put an end to the ’creeping negotiations’ with the IMF and declared that the two sides had agreed to end the talks. The Turkish Prime Minister, Recep Tayyip Erdogan, explained that the "two sides differ on some of the IMF’s key requirements, and that Turkey is now ready to stand on its feet."
The possible agreement had long been a confusing issue for Turkish economic pundits and observers. Turkey negotiated with the IMF for roughly two years, and the government previously declared at least twice that they were very close to a final agreement on the 20th stand-by (refer to table). The discussion over a possible stand-by agreement divided the experts mainly into two camps. The proponents argued that Turkey’s undeniable success in the 2002-2007 period partly came out of the ’anchor’ role of the IMF. They also pointed out that Turkey needs external credit sources in order to finance its current account deficit and to stimulate economic growth. In this regard, they claimed that the IMF is an important actor in keeping foreign channels open. Having taken the severe crisis conditions into consideration, the IMF was seen as a ’safe credit and credibility’ source by the first group.
On the other hand, the opponents underlined the incompatibility of the visions of the Turkish government and the IMF. They also underscored the unsuccessful formulas offered by the IMF during the previous crises. They argued that Turkey faced the drastic challenges of the financial crisis without the IMF’s support, which in turn proved Turkey’s ability to stand on its own feet. In terms of the political economy consequences, the anti-IMF lobby also underlined the detrimental symbolic effects of the IMF agreement on Turkey’s new initiatives to become a power centre in its neighboring region.
After the Prime Minister’s declaration it became apparent that the Turkish government followed the latter’s way and ended the negotiations. Contrary to some concerns, the international and domestic market actors did not overreact to the decision and no major shakedown occurred in the markets. Turkey, for the first time, overcame an important ’physiological barrier’ by denying the ’IMF anchor’ and relying on ’domestic sources’ in the middle of a severe financial crisis. This point is worth appreciating and is a clear indicator of the self-confidence of the ’New Turkish Republic.’ Nevertheless, one question still needs an answer: Is Turkey capable of facing the possible forthcoming challenges with its own sources?
The Challenges for the Turkish Economy
Turkey’s most important economic challenge, inter alia, is the low economic growth risk and the alarming unemployment as the epiphenomenon of low growth. Accordingly, the success of the new term without the IMF will be mainly tested by the success in those areas. In the following part, these challenges are briefly analyzed.
The ’New Normal’ for the Turkish Economy
As a result of the global financial crisis, a new concept entered into the economic lexicon: ’new normal.’ Accordingly, the historic growth figures realized during the 2002-2007 period are no longer possible. This sea change in growth figures is also the case for Turkey. After buoyant economic activity in the 2002-2007 period (annual economic growth was 6.8%), the Turkish economy started to shrink considerably as of the last quarter of 2008 (refer to following figure).
Negative growth continued into 2009 at an accelerating pace and reached 14.7% in the first quarter of 2009. However, the effects of this decline have yet to fully materialize. The socio-political transformation in the last decade rested in large part upon Turkey’s rapid economic growth. Since such rapid growth is now beyond the ’possibility frontier’ of the Turkish economy, one has to find extra sources to stimulate economic growth in the post-IMF period. Modest economic growth for the world is expected vis- -vis the latest ’economic boom’ years under the ’new normal’ scenario. Inescapably, Turkey will be affected by the incoming hard years. How would it be possible for Turkey to stimulate economic growth from its own sources? The real durability test for the Turkish economy seems to start at this point.
As the epiphenomenon of the low growth risk, it is the alarming unemployment figures that raised doubts about the strength of the Turkish economy. The unemployment figures have always been high in Turkey, yet the ratio has skyrocketed since 2007 and now almost 14% of the labor force does not have a job. In addition, the unemployment rate within the most dynamic part of the Turkish labor force (ages 15-24) is almost 25%.
Turkey could not reduce the unemployment figures during the high economic growth years; moreover, the unemployment rate increased dramatically due to the economic crisis. So the question is obvious: how would it be possible for Turkey to fight against unemployment under the ’new normal’?
The Economic Underpinnings of Turkey’s New International Stature
This question becomes vitally important not only due to the economic reasons. It should be underlined that Turkey’s recent economic performance has repercussions well beyond the economic sphere. When the recent foreign policy activism is taken into consideration it becomes apparent that the improvement in the Turkish economy underpinned Turkey’s new international stature. Thanks to the increased power of Turkish businessmen and the extra suitable international economic conditions, Turkey was able to play an active role in its neighboring region. The economic agreements and economy-driven visa arrangements improved Turkey’s gravity vis-a-vis its neighbors and other states. Yet, under the ’new normal’ scenario based on low growth figures, it no longer seems possible for Turkey to benefit from the practical hand of economic entrepreneurs as in the 2002-2007 period. Moreover, the unemployment risk deteriorates the social cooperation and cohesion in the domestic political economy. In the final analysis, it is these questions that ought to be discussed rather than merely the IMF agreement.
Mustafa KUTLAY
mustafakutlay@gmail.com
