A crisis in the cards? UN official warns of economic downslide in Turkey

Published March 2nd, 2015 - 09:01 GMT

Turkey is headed toward a major economic crisis, warned former United Nations Development Programme (UNDP) Turkey Director Bartu Soral, speaking to the Bugün daily in a report released Thursday. 

“During the [ruling Justice and Development Party (AK Party)] period, Turkey experienced a Tulip Era when it comes to growth; however, the economy was actually imploding,” said Soral, referring to a period in the first half of the 18th century during which the Ottoman Empire enjoyed relative peace and prosperity and tulips were supremely popular, dotting the imperial capital of Constantinople at the time. However, by the end of the short-lived era, which was also characterized by lavish spending, the empire was mired in conflict and economic problems. 

“There are three things that come to mind when describing the Turkish economy during the AK Party's tenure: borrowing, the foreign trade deficit and the current account deficit [CAD],” said Soral, pointing to the fact that while Turkey held $129 million in foreign debt when the AK Party came to power in 2002, that number skyrocketed to $402 million within 12 years. During the same period, the percentage of debt to disposable income rose from 3.4 percent to 55.2 percent, meaning that in 2002, $3.40 of debt could be found in every $100 of disposable income, whereas in 2013 that figure had risen to $55.20. 

Real sector outstanding foreign debt shot up more than sixfold, from $43 billion in 2002 to $268 million in 2013. However, the real growth average in Turkey between 2003 and 2013 was 4.98 percent, Soral noted, considerably lower than the average developing country rate of 6.44 percent. 

Soral summarized the past years as being defined by extensive borrowing in all areas, import dependency and a high CAD, while industrial production declined and the construction and the financial sectors expanded. He said Turkey's current situation bears similarity to Greece and Spain immediately before those countries entered an economic crisis. 

Critics of the government's reliance on the short-term, high profit nature of the construction sector have argued in favor of developing Turkey's industrial sector and increasing domestic production while scaling back on construction; however, President Recep Tayyip Erdoğan has dismissed the latter suggestion, saying that moving away from construction is out of the question. While Turkey was able to narrow its high CAD throughout 2014, it posted disappointing inflation figures and saw the lira growing weaker throughout the year, a trend that continued in 2015 as the lira reached record lows against the dollar. 

Meanwhile, unemployment has persistently remained in the double digits for months and youth unemployment has crept up to just under 20 percent, according to the latest available figures, which are for November 2014. One in three workers in Turkey works on an informal basis and does not receive social security benefits. This number is significantly higher in the agriculture sector, which employs one out of every five people working in Turkey. According to a recent report from the International Labour Organization (ILO), unemployment is likely to remain high in the coming years. Although it predicts a drop in the unemployment rate to single-digit territory, the ILO nevertheless held a relatively negative outlook. It predicted that Turkey's unemployment rate will be 9.2, 8.9 and 9 percent in the years 2015, 2016 and 2017, respectively.

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