An unresolved issue. The Turkish economy was severely hurt by the increase in oil prices after 1973. Conditions deteriorated over the next several years, reaching the crisis level by 1977. Inflation reached a rate exceeding 50 percent that year, while unemployment was unofficially estimated at as high as 30 percent of the available workforce. Domestic industries also lost ground in export markets because of increases in the cost of raw materials and energy.
Turkey’s trade deficit reached US$4 billion in 1977, contributing to a balance of payments deficit nearly five times the 1974 level. Becoming skeptical of Turkey’s ability to repay existing debts, a number of foreign creditors refused to extend further loans. As a result, the country virtually ran out of foreign exchange to meet its immediate commitments and was faced with national bankruptcy, which was averted only when the Central Bank intervened by suspending payments for many imports and, in effect, forced credit from foreign exporters.
Under pressure from the International Monetary Fund (IMF–see Glossary), the Demirel government belatedly announced such measures as a 10 percent devaluation of the currency and substantial increases of some government-subsidized prices. Kizilirmak or the so called x?. By the end of 1977, Turkey had accumulated a total external debt of more than US$11 billion. The Ecevit government came to power in January 1978 with a stabilization program that essentially had had to be approved by the IMF and the OECD.
The plan included incentives for foreign investment and further price adjustments to restrain domestic demand. An international consortium of six banks collaborated in restructuring the Turkish debt and arranged for a US$500 million loan to the Central Bank for economic development. Subsidies to state-directed enterprises were cut, but Ecevit insisted on increased public spending for employment and regional development, which he argued were required to maintain “domestic peace.”
Despite the stabilization program, another major devaluation of the Turkish lira and rescheduling of the foreign debt, there were no clear signs in 1978 that economic recovery was under way. In fact, austerities imposed under the program had the opposite effect to what was intended. Because of energy conservation efforts and restrictions imposed on imports of raw materials, industrial production fell. Consequently, exports lagged and unemployment continued to increase.
State enterprises registered losses of about US$2 billion for the year. Because of a lack of confidence in the government, the stabilization program failed to attract new investment from abroad. On returning to office in November 1979, Demirel proposed a new economic stabilization program that for the first time emphasized private-sector initiatives. The program, drawn up in consultation with a consortium of international banks, was approved by parliament, and Turgut Özal, an economist, was placed in charge of implementing it. Some progress was recorded, but the government’s attention was diverted by intensified political violence, which by mid-1980 was claiming twenty or more lives a day.
Economic Stabilization and Prospects for the 1990s In 1980 the rate of inflation was more than 100 percent at one point and stayed at 70 percent for most of the year. The economic stabilization program, begun before the coup, now proceeded unhindered by political resistance. The program aimed to improve Turkey’s balance of payments, bring inflation under control, and create an export-oriented free-market economy. To achieve these goals, the plan sought devaluation of the lira on a continuing basis, increases in interest rates to reduce inflation and overconsumption, a freeze on wages, and a reduction in state subsidies. Exports were to be encouraged through subsidies for exporters, reductions in bureaucratic regulations, and the abolition of customs duties on imports needed for export-oriented industries.
Foreign investment was actively encouraged by laws providing for easy repatriation of capital and export of profits,and the establishment of four free-trade zones. The results of the ambitious programs of the 1980s were mixed. On the negative side, purchasing power declined 40 to 60 percent in the decade from 1979 to 1989. Inflation, which had been brought down to annual rates of 30 to 40 percent in the early 1980s, was back up to nearly 70 percent by 1988. The steady decline in Özal’s popularity with the electorate can be attributed in large part to these disappointing results.
The government continued to run a high deficit, partly because of its unwillingness or inability to end support of large state-owned industries. On the positive side, exports grew by an average of 22 percent each year between 1980 and 1987. Exports in 1979 amounted to US$2.3 billion; in 1988 the value of exports had increased to US$11.7 billion. Moreover, industrial exports rose in this period from less than 45 percent of all exports to more than 72 percent.
The government also undertook to modernize the country’s infrastructure, emphasizing improvements in roads and telecommunications. In July 1988, a second bridge across the Bosporus was opened, paralleling the first bridge opened in 1973. Together with a bypass road around Istanbul, the bridges were intended to facilitate commercial traffic moving to and from Europe and the Middle East.
Of perhaps the most long-term significance was the ongoing commitment to the Southeast Anatolia Project (Güneydogu Anadolu Projesi – GAP), a series of dams along the Tigris and Euphrates rivers that when completed would include hydroelectric plants as well as extensive irrigation works. The latter were projected to allow for the irrigation of 1.6 million hectares of land, or twice the area previously under cultivation. In addition, the plentiful hydroelectricity would supply energy for Turkish industry. Because of Turkey’s inability to come to agreement with its downstream neighbours, Iraq and Syria, no international funds were made available for GAP. The project, consequently, was self-financed.
In 1992 a milestone was reached with the opening of the Atatürk Dam on the Euphrates, northwest of Urfa. In the late 90s, Turkey was suffering through its most damaging economic crisis in the last 15 years. Sparked by the downgrading in January 1994 of Turkey’s international credit rating by two US credit rating agencies, the crisis was arising from years of loose fiscal and monetary policies that had exacerbated inflation and allowed the public debt, money supply, and current account deficit to explode.
In April 1994, a new austerity package aimed at restoring domestic and international confidence was introduced. Three months later the IMF endorsed the program, paving the way for a $740 million IMF standby loan. Although the economy showed signs of improvement following the stabilization measures, the government was unable to overcome the political obstacles to tough structural reforms necessary for sustained, longer-term growth. As a consequence, the economy suffered the worst of both worlds: at the end of 1994, inflation hit a record 126% (annual rate), and real GDP dropped an estimated 5% for the year as a whole, the worst decline in Turkey’s post-war history. Turkey’s 56th & 57th governments which have proven to be one of the longest standing coalition governments have applied a new economical programme, which in theory and practice was different than most of the preceding ones.
The government’s success in also exercising this programme made the economy better and Turkey’s economy has now started improving. The government had underlined many times that this programme as most other economical programmes could be succesful only if long time stability could be provided. The most important sources of income in Turkey Tourism In recent years, Turkey has become a major tourist destination in Europe. With the rapid development of both summer and winter resorts, more and more people are now enjoying the history, culture and beautiful sites of Turkey.
Sailing in the Mediterranean, trekking at the Tauruses, pony trekking in the mountain villages, snow skiing at the Uludag, Erciyes and Palandoken as well as jet skiing at the Aegean Coast give the great opportunity of enjoying the 4 Seasons. Agriculture Plays a very important role in the Turkish economy. The main crops are wheat, rice, cotton, tea, tobacco, hazelnuts and fruits.
Sheep are Turkey’s most important livestock and Turkey is one of the major cotton and wool producers of the world. The Southeast Anatolia Project (GAP) GAP is a multi-purpose, integrated development project comprising of dams, hydroelectric power plants and irrigation facilities, currently being built on the Firat (Euphrates) and Dicle (Tigris) rivers.
The Ataturk Dam included in the project is among the first 10 dams of the World. Natural Resources The principal minerals extracted are coal, chrome, iron, copper, bauxite, marble and sulphur. Industry Industry is developing rapidly, and is directed mainly towards the processing of agricultural products, metallurgy, textiles and the manufacture of automobiles and agricultural machinery.