Turkish Daily News
The government of Turkey, which experienced a period of uninterrupted growth in the wake of the reforms that followed its 2000-2001 economic crisis, needs to face up to some major challenges in order to lead the country from �post-crisis recovery� into a new phase of sustainable high growth, said the chief economist at the Organisation for Economic Co-operation and Development, or OECD.
Evaluating OECD's latest review of the Turkish economy, Rauf Gönenç said the organization identified three main areas for action. On the fiscal front, the government needs to maintain a rigorous policy stance, while strengthening growth-enhancing public services and reducing distortive aspects of the tax system, he said in his evaluation for Euractive.com.
Secondly, the monetary policy must focus firmly on reducing inflation and be backed by structural reforms to enhance competition and moderate prices, particularly in the service area, Gönenç said. He also noted that labour market regulations must be revised to reduce the barriers to formal employment and allow firms to move out of the informal economy and into the formal sector.
There was a tendency now to deem OECD reports useful for making Turkish economic policy, Gönenç said. This is a signal that Turkey was moving from being �an outsider in the OECD environment, closer to the concerns of the developing world� to becoming �a modern market economy equipping itself with effective macro-economic institutions and micro-economic rules,� he said.
Grounds for optimism
Turkey's recent economic performance gives grounds for optimism, Gönenç said. �The last six years of growth haven't simply marked a return to past output or employment levels or the artificial result of inflows of �hot money.� Instead, growth has been underpinned by growing confidence in the long-term durability of Turkey's enhanced macro-economic prospects and business climate,� he said, adding that modern industries have coped with a stronger Turkish lira, continuing to create new employment opportunities.
�However, traditional industries based on low-cost labour have been hit by competition from lower-cost emerging economies. With employment in these industries shrinking, young people flooding into the labour market and insufficient job opportunities elsewhere, Turkey's total employment rate has declined and the aggregate unemployment rate has risen slightly,� he said.
Addressing remaining macro- and micro-economic challenges can create a virtuous circle in the opposite direction, he said, adding that a return to strong trend growth and bettered external imbalances would help to raise Turkey's credit rating, reducing the high risk premiums.
�This, combined with a fall in real interest rates, should give an extra push to investments, employment and growth. We believe that Turkey can sustain a somewhat higher current account deficit than in the pre-2001 period, within reasonable proportions, without relapsing into economic crisis. If the economy works to its full capacity, maintaining its competitive edge and increasing productive investments, it will be able to finance a higher current deficit through foreign investment inflows, without having to resort to much higher external debt.�
To dispel concerns regarding the economy, Turkey needs to ensure that its public finances become fully transparent through the publication of general public sector accounts, in line with international standards, and the consolidation of the recently adopted medium-term fiscal framework with annual spending ceilings, Gönenç noted.
�The Central Bank must be given more active support in its drive to lower inflation, both through structural reforms in such areas as competition and labour market policy and through wage and price restraint agreements between employers and labour unions,� Gönenç said.
Turkey also needs to address the dysfunctional multipolarity of its economy, in which a formal sector sits side by side with an informal sector, Gönenç said.
�Until this �structural schizophrenia' is addressed, Turkey will fall short of full efficiency and competitiveness, because of the barriers facing its companies in tapping capital markets, skilled labour resources and foreign direct investment,� said Gönenç.