Turkish leaders grow more self confident at Davos talks

Mon Jan 30th 2012

There are many descriptions used for Turkish political and bureaucratic leaders, and not everybody agrees on each and every one of them; yet, there is one that should grow more popular among observers of Turkish policy-making these days: They are becoming more self confident when they get a chance to talk to their counterparts from around the world, particularly from the United States and the European Union in the current framework of economic difficulties.

Those attending the talks being held in the Swiss resort town of Davos over the past few days are one proof of that. Every time they make an appearance at one of those closely watched debates or talk to journalists also camped to catch remarks and images appealing to their audience, Turkish participants increase their tone of self confidence. And they themselves indicate that the air in the Swiss Alps has helped them grow surer of their own interpretation of the state of national and global matters. “Since I've seen Davos, I am more comfortable with [our economic growth forecast] of 4 percent [for Turkey's economy this year],” Turkish Central Bank Governor Erdem Başçı told a TV program on Saturday.

For him, the challenges currently faced by developed and developing countries are as different from each other as “black is from white.” He says the countries in the emerging world, including Turkey, are discussing structural issues such as how their development potentials can be fully used and how the infrastructure projects they plan to implement can be advanced under a financing squeeze, whereas the developed nations, including the world's superpower, the US, and the 27-member EU, are troubled by fundamental questions: Will their governments continue to make debt repayments on time, and how will this affect the banking sector?

Turkey's gross domestic product (GDP) grew by over 5 percent on average each year under Prime Minister Recep Tayyip Erdoğan's Justice and Development Party (AK Party) between 2002 and 2010. Even improving its already much praised performance last year, it expanded by nearly 10 percent in the first three quarters. The figure for the latest quarter has yet to be announced, yet most indicators point to another 8 percent expansion for the country's economy in 2011. With that much economic growth, however, came a staggering current account deficit (CAD) for the energy-thirsty country. To maintain financial stability, the government and the central bank took action and implemented measures to cool down the economic boom to a more sustainable level of around 5 percent. Those measures, coupled with the darkening outlook for the world economy, led foreign observers, among them leading financial institutions, to lower their economic growth forecasts to predict little or no growth for the country's economy this year. Defying those predictions, the government, however, foresees another 4 percent economic expansion this year, an estimate much reiterated by leading members of its Cabinet and even more by those attending this year's Davos talks.

As well as Başçı, Turkey is represented at the famous gathering by Deputy Prime Minister Ali Babacan and European Union Affairs Minister Egemen Bağış, well known faces of the country within the international community of political and economic leaders.

Under AK Party rule since late 2002, Turkey saw its budget deficits diminishing to nearly 1 percent of its GDP, while its economy showed almost uninterrupted growth, creating ever more jobs for its young population. In the same period, the government also managed to bring the country's public debt-to-GDP ratio to as low as 40 percent -- compared to an EU average of some 80 percent -- this year from over 100 percent at the end of 2001. The inflation in consumer prices, likewise, came down to 10 percent at the end of last year from nearly 70 percent a decade ago.

All these economic achievements of the country, particularly in the past three to four years, came at a time when most of the developed world saw its economies grow too little to recover from what is now referred to as a global economic crisis more serious than the Great Depression of the early 1930s. Comparisons of the Turkish economy and particularly those in the rest of Europe are frequently made and all come to a widely acknowledged reality: Turkey did a great job in the past decade.

“You are having a privileged position by the ringside seat of the eurozone, and I know you have views on that. Obviously, you also had a financial crisis in the last decade, and Turkey has coped with it quite remarkably. So you have lessons to teach us as well,” Martin Wolf, chief economics commentator of the Financial Times said to Babacan at a Davos panel he chaired on Saturday.

Speaking of how Turkey managed to overcome its economic problems, Babacan underlined the importance of being a trusted political authority, which he said is the key to maintaining confidence in the economy. Otherwise, he said, “Consumers stop spending, corporations stop investing and banks stop lending.” At the panel he sat next to world economic leaders such as International Monetary Fund (IMF) chief Christine Lagarde and World Bank President Robert Zoellick as well as UK Finance Minister George Osborne, Japanese Economy Minister Motohisa Furukawa, Canadian Central Bank Governor Mark Carney and Hong Kong's chief executive Donald Tsang.

Where to for the Turkish economy?

The AK Party has been in office for the past nine years, and it seems highly unlikely for it to be unseated before the next general elections in 2015. Even then it will again be up to the people to decide who forms the government, and in a country with swiftly increasing GDP per capita (from some $3,000 in 2002 to around $10,000 last year) and decreasing unemployment, no one can talk of a strong likelihood for another political group to replace the AK Party given the fact that it garnered almost 50 percent of all ballots cast in the last general elections half a year ago. And Erdoğan's AK Party sees only a brighter future for the country's economy. Its Medium-term Economic Program (OVP) foresees a lower public debt-to-GDP ratio and lower budget and current account deficits.

According to the OVP, Turkey's CAD is expected to be 8 percent of GDP this year, and the CAD-to-domestic output ratio will drop to 7.5 percent in 2013 and to 7 percent in 2014. Its budget deficit, likewise, is expected to decline to 1.5, 1.4 and 1 percent of its GDP in 2012, 2013 and 2014, respectively. The OVP also points to a continuously diminishing public debt-to-GDP ratio till 2015. According to that plan, this ratio will drop to as low as 32 percent in 2014.

Turkish leaders grow more self confident at Davos talks

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