20 - 26 December 2001
Issue No.565
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Al-Ahram Weekly Online 20 - 26 December 2001 Issue No.565 |
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Hanging tough
Despite its ailing economy, Turkey is intent on embracing globalisation. Its experience may be instructive for Egypt, writes Niveen Wahish
Over the past two decades, Turkey has suffered repeated economic crises. The latest happened earlier this year, when a devaluation of the currency had the people taking to the streets. Economic labels like budget deficit, high interest rates, price hikes, and contracting economy give mere ghostly hints of the pain the Turkish economy has suffered. Desperate for loans, the Turkish government has had consecutive stand-by agreements with the International Monetary Fund (IMF) and is currently implementing an IMF-backed reform program worth some $19 billion. Last month, Turkey won approval from the IMF governing board for up to $10 billion in new loans.
Within the framework of the IMF packages, Turkey is aiming to trim state bureaucracy, cut government spending, reform the financial system, privatise public sector enterprises, enhance transparency in economic management, improve governance in the public and private sectors and strengthen the social security net. Yet Turkey's problems persist today, even though it was among the first countries in the region to venture on to the track of reform. Indeed, the reform Egypt began through its own stand-by agreement in the 1990s, had been preceded by Turkey's reform program in the 1980s.
Beforehand, Turkey was a well-protected market and import substitution was the model for Turkish industrialisation. But beginning in 1980, a programme of economic reform was launched that aimed to decentralise the economy and strengthen market mechanisms. Within that framework, laws were developed to liberalise foreign trade rules, the foreign exchange regime and activate the capital market.
Turkey's deteriorating economy has provoked critics to ask whether the liberalisation which accompanied reform is in fact the culprit. But according to Attila Karaosmanoglu, former managing director at the World Bank and current advisor to the board of the Istanbul Chamber of Industry, Turkey's economic crisis is due to its failure to implement the necessary institutional changes needed for a market economy. "This led the economy to slow. Foreign currency expenditure grew as a result of the liberalisation of imports, while revenues in foreign currency shrank. This led to the increased indebtedness of the country."
Karaosmanoglu, speaking to a delegation of Egyptian journalists in Istanbul, observed that while many believe Turkey's ills stem from globalisation and the opening of the economy, the real causes are different. "Turkey's problems are because of incompetent management and not because of liberalisation" he said, adding "Turkey would have suffered more if it had not adopted a free market economy."
The weakness of Turkey's financial sector lies behind the current economic crisis which he described as "the worst in Turkish history."
Sinan Ulgen, of AB Consultancy and Investment Services, has a similar view. "The reason why the Turkish economy is in a deep crisis is not globalisation," he argues. Rather, he thinks, it is because Turkey has failed to execute many of the measures accompanying reform. Coupled with political instability, this has led to a crisis. "The structural measures which had to be implemented years ago are now being enforced," says Ulgen. He urged the reform of banks, social security, farming policy, and public procurement as crucial to economic improvement. "Once that is done, the Turkish economy will have finally laid the necessary stones for a long-term and healthy growth strategy, while still embracing globalisation," he said.
Despite all their problems, Turkish policymakers and citizens have not been diverted from political norms. The prevailing view in Turkey is pro- globalisation and the customs union with the EU -- active since 1996. Full membership of the EU remains the grand goal. "It is considered the vehicle for integration into the world economy." says Ulgen.
For Egypt to avoid Turkey's difficulties, Ulgen argues that "half-hearted attempts to embrace globalisation are sure to fail, now or in the near future." To succeed, he thinks, requires a comprehensive programme of reform. And "any attempt by politicians to behave as if international factors are non-existent will pave the way to a serious economic crisis."
Indeed, the economic crises that have hit Turkey were inflamed by events outside Turkey: from the South East Asia Crisis to September 11, international events have taken their toll on those reforms already under way.
One area where significant reform is happening in Turkey is in the financial sector. Michael Deppler, director of the European department of the IMF, commenting in the Financial Times, points out that the main change has been in governance. "Banks are now responsible to independent and professional bodies," he writes. The changes in governance have also been complemented by three other steps: a complete financial restructuring of the system to protect depositors and creditors and permit parts of the system to return to life; ridding banks of unprofitable activities; and a toughening of supervision to ensure that past problems do not occur.
Those steps are the very least which, it is felt, Turkey needs to take to recover from its economic travails. Other nations, with economies also faltering, may like to take note.
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