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Global Shifts tothe EmergingEconomies:TheRiseof Turkey
Prof. Dr .Vildan SERİN
Fatih University
Istanbul, TURKEY
vserin@ fatih.edu.tr
Assoc. Prof Dr. Filiz Kadı
Fatih University
Istanbul, TURKEY
fkadi@ fatih.edu.tr
Abstract
With indications of economic trouble brewing in the first months of 2008, the last months of 2008 finally saw the beginning of what is being called the worst financial crisis since the Great Depression of 1929. In fact, the economic power of the world is likely to shift from the advanced Western countries to the East Asian countries. Thus, in this paper, first global imbalances which caused of the global shifts towards Emerging Economies will be examined. Secondly the process of economic, political and structural transformation process of Turkey which ended in the problems ranging from informational,and dynamic inefficiencies to social political imperfections will be analyzed. Finally Turkey’s role as the leading player in restoring the healthy functioning of the global economy will be discussed
Key words: Global shifts, Turkish economy, economic liberalization, emerging countries
Introduction
Specifically latest global financial crisis, not only caused the turmoil in global financial markets but also a profound systemic disorder. It is the inevitable outcome of the progressive deregulation of financial markets, and colossal growth of the process of shifting investment from manufacturing to ever more exotic forms of financial speculation, the rise of the shadow banking system - the illusion of wealth - initiated by Wall Street and its ‘backyard’, the City of London.(Gowan, 2009).
According to . British Prime Minister David Cameron ,Turkey is BRIC of Europe. (Hürriyet Daily News ,October 13,2010)In his press conference, he said “Everyone is talking about ‘BRIC’ countries and the rapid growth in [the group’s] economies of Brazil, Russia, India, and China. We think that Turkey is a BRIC country of Europe”.( (Hürriyet Daily News ,October 13,2010) With a huge and growing market with a population of 73.7 million Turkey has unique geographical location as a gateway to European, Middle Eastern,North African and Central Asian markets. In some respects, Turkey is a perfect example of the rise of emerging economies.
Global ShiftsFromAdvancedCountriestoEmergingCountries
Economics textbooks write that the baseline expectation for the direction of capital flows across borders in the global economy is from rich to poor countries. This natural flow is interrupted or even reversed by certain risk factors. As Stiglitz suggests (Stiglitz, 2010); Bernanke and Greenspan doctrines have proved inadequate. Financial markets acted incorrectly in controlling risks and directing the capital to low-cost activities. Especially those countries that have independent central banks were more unsuccessful than those with dependent ones. The reason of this is the fact that countries with autonomous central banks focused solely on the target of combating inflation and threw targets such as growth, employment and financial stability out of focus. However, the effects of the crisis were bigger than the damages of inflation. In this period, G-7 countries began to fail to overcome the ambiguities that emerged in the international monetary system, because while developed countries were incurring current account deficits due to global imbalances, developing countries began to have current account surpluses and to increase their dollar reserves.
Turkey’s Neo-Liberal EconomicTransformation in the Post 1980s Era
The reason of increasing significance of Turkey in international politics lies in the political, economic and foreign policies that Turkey has been implementing for the last three decades. Turkey’s political strategy has given priority to freedom and democratic participation. The economic pillar, on the other hand,is economic growth and sustainability. These are accompanied by a foreign policy pillar that isproactive and peace-oriented. Serious structural transformations marked the year 1980 both in Turkey and in the world, and the notion of liberalization has since deeply influenced the economies of all countries. Turkey got involved in the process that commenced with the widespread application of neoclassical development models after the January 24th Decisions. In this process in which globalization gained speed; countries put into effect several liberal policies aimed at opening their boundaries to the flows of capital, and economies began to be shaped by outward-oriented industrialization and liberalization policies.
The leading figure of the process of liberalization started in Turkey was TurgutÖzal. Turkey underwent a transformation in many respects in this period called the Özal era. The most important development for Turkish foreign trade was the initiation of the large-scale economic program on January 24, 1980, which determined the direction of the post-1980 process of opening to the world. With this program aimed at promoting the reign of the free market and integrating the economy into world markets, Turkey shifted from the inward-oriented strategy of import-substitution industrialization to the outward-oriented strategy of export-led industrialization.
With this new strategy, Turkey started to engage in closer relationships of mutual trade with its neighbors and these improved relationships began to be reflected especially on export figures. According to the data of the Undersecretariat of Foreign Trade (DTM), Turkey’s exports rose from 2,3 billion dollars to 134, 9 billion dollars from 1979 to 2011 ( On the other hand, the share of agricultural products in the exports rapidly declined and the share of industrial products expanded. According to the DTM Export Development Report, the share of industrial products in exports rose from 36% to 96% between 1980 and 2009 (DTM; 2010). Two important developments regarding foreign trade were observed in this period: Turkey became a member of the World Trade organization (WTO) and signed the Customs Union Agreement with the EU in 1995 (Özdemir, Törenli ,Kıyan, 2011:133).
Turkey’s ties with the global economy have sharply strengthened following the 2001 economic crisis thanks to the successful implementation of stability and structural reform programmes along with the positive atmosphere in the global economy. The post-crisis economic and political adjustments were mainly overseen by the then newly founded Justice and Development Party (AKP) which came to power enjoying absolute majority in the parliament in the November 2002 elections.(Yeldan,2008,p.2) Though maintaining the pro-Islamic political. (Yeldan,2008,p.2) Therefore, the average annual growth rate of Turkey’s import volume agenda, the AKP nevertheless distanced itself from the previous “national view” orthodoxy of the traditional Turkish Islamic movement. The AKP refurbished itself with a more friendly view towards the West, ready to do business with the global finance capital and willing to auction-off the strategic public assets to the trans-nationalswent up from 11% (1991-2000) to 31% (2002-2008). In the post-2001 period, the export volume, too, has exhibited a rapid growth: It rose from 8% (1991-2000) to 30% (2002-2007) (Özcan Acar 2009: 6).
Turkish economy has achieved strong growth built upon solid macroeconomic stability.With the growthby 11 percent in the first half of 2010, Turkey took a place among the top competitive countries in the world. Structural reforms, tightfiscal policies and independent central bank policies have contributed to its strong and sustainable growth. Strong banking system was another important factor in preserving the stability.Before the 2008 global crisis, Turkey managed to restructure the banking sector with the reform process in 2004, 2005 and 2006. Moreover, Banking Regulation and Supervision Agency (BRSA), and the central bank have periodically conducted stress tests to check the resilience of each bank and the banking system as a whole. Therefore, Turkey managed to remain as the only OECD member that did not need to intervene in the banking sector.
Foreign Trade and Investment
In this section, the developments in Turkey’s economic relations between European Union, Middle East Countries and Russia will be examined
European Union-Turkey
Liberal foreign trade policy, flexible exchange rate system, liberalized foreign exchange system and structural adjustment measures have brought about significant positive developments in the Turkish economy after 1980. Economic growth has gained speed, inflation has been brought under control to a certain extent and foreign currency balance has been largely achieved. Infrastructural facilities, especially communication and transportation, have been improved. These positive developments have made it possible for Turkey to fulfill the requirements of the Supplementary Protocol. Thus, the Turkey-EEC relations were back on the rails as planned by the Ankara and Supplementary Protocol agreements and began to improve. The fact that Turkey improved its exports and balanced its international payments despite its economy had been opened rapidly to foreign competition has strengthened the idea that the Turkish economy would compete in the EEC markets. As a result of these developments, Turkey applied for full membership in April 14, 1987 (O. Morgil- 2003:106). The process was slowed down by economic difficulties and coup d’états, yet Turkey finally became a member of the Customs Union in 1996. In the Helsinki Summit held on December 10-11, 1999; Turkey’s candidacy for full-membership was approved and a new era commenced in the long history of the Turkey-EU relations.
Turkey is the only country that is not a full member of the European Union but a member of the Customs Union. When the trade relations between Turkey and EU countries are examined in order to understand the impact of the Customs Union; it is seen that Turkey’s both imports and exports increased in the first years, but the rise in imports was higher than that in exports. Turkey has failed to benefit from the trade effect that the Customs Union memberships was supposed to create, and the effects in theory such as the trade creation effect and market expansion effect has not been observed as expected since 1995 (Akpınar, Keskin,2000). However, at this point, the crises experienced in 1998 and 2001 should be taken into consideration. The reason the trade has not increased pertains to the recessions in the Turkish economy. Frequent crises of these years (1994 crisis, 1997–1998 Southeast Asia and Russia crises and 2000–2001 crisis) make it difficult to determine how much of the change in Turkey’s foreign trade figures has been caused by the Customs Union membership (ElaNart, 2010:2877).
After Turkey became a member of the Customs Union, Turkey’s exports to the EU have risen faster than its imports from the EU; and as a result, Turkey’s export-import coverage ratio in its trade with the EU increased from 66% (1995) to 77% (2003). On the other hand, the share of Turkey’s foreign trade deficit originating from its trade with the EU in its total foreign trade deficit has been diminishing in recent years (13% in 2007) (Utkulu, 2009;11‐12).
Table 1 : EU-TurkeyTrade
EU’s Share %Years / Export / Change % / Import / Change % / Exp/Imp / Export / Import
1993 / 7,599 / 13,875 / 54.8 / 49.5 / 47.1
1994 / 8,635 / 13.6 / 10,915 / 21.3 / 79.1 / 47.7 / 46.9
1995 / 11,078 / 28.3 / 16,861 / 54.5 / 65.7 / 51.2 / 47.2
1996 / 12,569 / 13.4 / 24,321 / 44.2 / 51.7 / 54.1 / 55.7
1997 / 13,435 / 6.8 / 26,119 / 7.4 / 51.4 / 51.1 / 53.8
1998 / 14,813 / 10.2 / 25,282 / 3.2 / 58.6 / 54.9 / 55.1
1999 / 15,424 / 4.1 / 22,530 / 10.9 / 68.5 / 58.0 / 55.4
2000 / 15,664 / 1.5 / 28,527 / 26.6 / 54.9 / 56.4 / 52.3
2001 / 17,546 / 12.0 / 19,824 / 30.5 / 88.5 / 56.0 / 47.9
2002 / 20,415 / 16.4 / 25,689 / 29.6 / 79.5 / 56.6 / 49.8
2003 / 27,394 / 34.2 / 35,140 / 36.8 / 77.9 / 58.0 / 50.7
2004 / 36,581 / 33.5 / 48,103 / 36.9 / 76.0 / 57.9 / 49.3
2005 / 41,365 / 13.1 / 52,696 / 9.5 / 78.5 / 56.3 / 45.1
2006 / 47,935 / 15.9 / 59,401 / 12.7 / 80.7 / 56.0 / 42.5
2007 / 60,399 / 26.0 / 68,612 / 15.5 / 88.0 / 56.3 / 40.3
2008 / 63,390 / 4.95 / 74,802 / 10.8 / 84.7 / 48 / 37
2009 / 46,977 / -25.8 / 56,588 / -24.3 / 83 / 45 / 40.1
2010 / 52,685 / 12.1 / 72,244 / 27.6 / 72.9 / 46 / 38.9
2011 / 62,347 / 18.3 / 91,128 / 26.1 / 68.4 / 46.2 / 37.8
Source: DTM
The 2008 global financial crisis has reduced the share of EU countries within Turkey’s imports and exports. Between 2007 and 2011; the share of the EU in Turkey’s exports and imports went down from 56.3% and 40.3% to 46.2% and 37.8%, respectively. Despite this fall, the European Parliament stated in its report entitled “Trade and Economic Relations with Turkey” that the EU’s trade relations with Turkey are at an advanced level. In the report, moreover, it is suggested that the cooperation between the parties in trade and investment should be improved in order to overcome the effects of the global crisis, and the importance of Turkey’s geo-strategic position as well as its young population for economic development are stressed. Among the most important foundations of the report are the facts that Turkey is the fifteenth largest economy in the world and the sixth largest economy in Europe, with industrial goods amounting to over 90% of its exports; and that Turkey is the EU’s seventh largest trade partner and the EU is Turkey’s largest trading partner (Turkey has been a member of G-groupingsfromtheverybeginning of 1999, theglobalfinancialcrisisledtoTurkey’smembership in the G20 andincreasedthetrust of Turkishpolicy-makers. As a member of the G 20s ,Turkey is theonlycountrywhich has beencarrying on accessionnegotiationswiththe EU since October 2005.Turkey has a competitiveindustry intheCustomsUnionwiththe EU for 17).
Relations with the Middle East Countries
Turkey’s ties with the global economy have been becoming stronger since the 2001 crisis. As it could be seen in Table:1 that show Turkey’s foreign trade, the highest share belongs to the EU countries both in exports and imports. However, the weight of the EU has been declining, whereas some Middle Eastern and Asian countries along with other European countries have been becoming more important.
It is alsoTurkey is a bridgebetween “ ChristianEuropeandMuslimMiddle East(Fuller, 1992 ). Being a secularMuslimcountryand a democracywith a liberal market, Turkeybecomes a “model” countryfortheMiddle East. Furthermore, Turkey’sattractiveness as a softpower has increased, especially in theArabMiddle East. The JDP (Justice and Development Party) Government has embarked on establishing structural relations that could pose an alternative in case of an exclusion of Turkey by the West or could strengthen Turkey’s hand against the West, instead of increasing Turkey’s strategic importance in the eyes of the West (NasuhUslu, 2010:148). According to the government’s new Middle East strategy, which has been largely shaped by Ahmet Davutoğlu who was the senior advisor of the Prime Minister and would later become the Foreign Minister; Turkey needed to pursue a policy of “zero problem with neighbors” in order to be able to turn geographical depth into a strategic depth. The plan was to increase the economic and cultural human mobility with neighbors and to pursue a strategy that would canalize the values and relations produced around Turkey ( 27/66_tr.asp 26.04.2006).
Turkey has given messages to countries of the region and received reactions to these messages, improved its relations with countries like Syria and Iran, and become one of the leading countries in regional crises (Jung 2005: 13). Turkey’s mediation is now sought in serious problems and it is even capable of producing solutions to problems about which the US is ineffective such as the election of the Lebanese President.
Economic developments in Turkey, the policy of zero problems with neighbors, and active policies that Turkey pursued in the international arena have all been reflected on trade relations, and thus the number of countries with which Turkey has an export volume higher than 1 billion USD rose from 5 countries in 2000 to 30 countries in 2008. Thanks to this diversification, the share of Turkey’s exports to its most important ten trading partners within its total exports went down from 62% to 49% between 2000 and 2005 (Özcan Acar, 2009, p.6). In other words, Turkey has become more resilient to potential negative developments in the economies of its most important trading partners. The most important outcome of the multifaceted foreign policy pursued by the JDP after 2002 has been seen in Turkey’s trade relations with Middle Eastern countries. Turkey’s exports to these countries rose from 3.4 billion dollars in 2002 to 27.9 billion dollars in 2011 (DTM, 2011). Thus, negative effects of the shrinking demand experienced in European countries following the 2008 crisis have been felt moderately by Turkey. A serious decline was not observed in 2009 in Turkey’s exports to Middle Eastern and OIC countries. The share of Turkey’s exports to these countries within its total exports rose from 13.1% in 2002 to 27.6% in 2011. Turkey is one of the top trading partners of the countries of the region. For example, according to the CIA’s data for 2009, Turkey ranks fifth in exports and seventh in imports among Iran’s trading partners. The foreign trade volume between Turkey and Iran rose from 1 billion dollars in 2000 to 10.7 billion dollars in 2010.
Table 2. Turkey’s Export with Selected Countries
TOTAL EXPORTS / 2002 / 2003 / 2004 / 2005 / 2006 / 2007 / 2008 / 2009 / 2010 / 201136,059 / 47,253 / 63,167 / 73,476 / 85,535 / 107,272 / 132,027 / 102,143 / 113,883 / 134,907
AFRICA / 1,697 / 2,131 / 2,968 / 3,631 / 4,566 / 5,976 / 9,063 / 10,180 / 9,283 / 10,334
Near and Middle East / 3,440 / 5,465 / 7,921 / 10,184 / 11,316 / 15,081 / 25,430 / 19,208 / 23,295 / 27,935
RUSSIAN FEDERATION / 1,172 / 1,368 / 1,859 / 2,377 / 3,238 / 4,727 / 6,483 / 3,202 / 4,628 / 5,993
CIS Countries / 2,279 / 2,963 / 3,962 / 5,057 / 6,993 / 10,088 / 13,938 / 7,957 / 10,288 / 13,377
Turkic Republics / 619 / 899 / 1,194 / 1,409 / 1,982 / 2,874 / 3,749 / 3,399 / 3,921 / 5,040
OIC Countries / 4,725 / 7,205 / 10,214 / 13,061 / 15,007 / 20,311 / 32,597 / 28,627 / 32,470 / 37,325
Source: DTMww.dtm.org.tr
Table 3. Turkey’s Import with Selected Countries
TOTAL IMPORTS / 2002 / 2003 / 2004 / 2005 / 2006 / 2007 / 2008 / 2009 / 2010 / 201151,554 / 69,340 / 97,540 / 116,774 / 139,576 / 170,063 / 201,964 / 140,928 / 185,544 / 240,842
EU Countries / 25,689 / 35,140 / 48,103 / 52,696 / 59,401 / 68,612 / 74,802 / 56,588 / 72,244 / 91,128
Africa / 2,696 / 3,338 / 4,820 / 6,047 / 7,405 / 6,784 / 7,770 / 5,700 / 6,414 / 6,767
America / 4,065 / 4,922 / 6,595 / 7,857 / 9,401 / 12,152 / 17,224 / 12,275 / 16,799 / 22,750
Near and Middle East / 3,186 / 4,455 / 5,585 / 7,967 / 10,568 / 12,641 / 17,628 / 9,595 / 16,091 / 20,439
Russian Federation / 3,892 / 5,451 / 9,033 / 12,906 / 17,806 / 23,508 / 31,364 / 19,450 / 21,601 / 23,953
CIS Countries / 5,555 / 7,777 / 12,927 / 17,253 / 23,373 / 31,263 / 42,614 / 26,045 / 30,600 / 33,159
Turkic Republics / 468 / 623 / 946 / 1,267 / 1,967 / 2,669 / 4,279 / 2,874 / 4,615 / 3,642
OIC Countries / 6,072 / 8,195 / 10,631 / 14,459 / 19,111 / 21,524 / 29,179 / 17,970 / 27,949 / 31,418
Source: DTM ww.dtm.org.tr
Relations with RussiaTurkey in the Post ColdWar Era
As thecoldwarcametosuddenendmanyinofficialandacademiccirclesthoughtthestrategicsignificance of Turkeyfor he WestwenAlliancewoulddiminish. However as eventsunfolded (the Azeri ArmenianWar, CivilWar in BosniaHerzegovina,instability inMacedoniaand Kosova, the golf crisis, instability in Georgia andtheinterdependence of CentralAsianStates )it becameclearthatTurkeyremained a crucialstrategic nationfortheworldpeace.
Afterthe post coldwareraeconomicalreletionshipbetweenTurkeyandRussia has rised. Especially the last decade, share of Russia has considerably increased in Turkey’s imports. One of the striking points about the report prepared by Metin Kazak, a member of the European Parliament, entitled “Trade and Economic Relations with Turkey”, was its emphasis on the changes in Turkey’s foreign trade. This report underlines that Turkey’s greatest trade partner is Russia, not Germany, and regards this as an indicator of the transformation that the Turkish foreign policy has undergone (
Turkey’s relations with Russia gained momentum after JDP came into power in Turkey and Putin became the President of Russia. This good atmosphere has also been reflected on the mutual trade and the foreign trade volume reached up to 38 billion dollars in 2008. Although the global economic crisis caused a slowdown, it started to rise again and rose to 29.9 billion dollars in 2011. It is planned to increase this number above 100 billion dollars within five years.
Not only the trade of goods between the two countries has been improved; 3.1 million tourists visited Turkey in 2010, the volume of the contracts of the Turkish construction industry in Russia reached up to 32 billion dollars, and an agreement was signed for the construction of a nuclear power plant in Turkey. These developments all imply that the relations between Turkey and Russia will further become stronger.
Turkey and Russia are now trying to turn the centuries-old geo-political struggle between one another into a geo-economic cooperation. At this point, Turkey’s insistent attitude in the project of constructing a nuclear power plant was a very important step that improved mutual relations. While the catalyst of the 1990s was economic relations, energy relations became the catalyst of the 2000s (FatihÖzbay 2011).