Speaking at a press conference held yesterday to announce the government's stance on major economic issues, Erdoğan said, "I believe Turkey will transform this thorny process into an opportunity."
Deputy Prime Minister and Minister of State for the Coordination of the Economy Nazım Ekren, Foreign Trade Minister Kürşad Tüzmen and Finance Minister Kemal Unakıtan were also present at the pres conference. Despite expectations that the government may loosen its grip of fiscal discipline ahead of the upcoming local elections in March 2009, Erdoğan stressed that there would be no concessions. The discipline will continue to prevail in the future, as it has until now. Thanks to this decisive attitude, Turkey is now much more resilient to shocks and crises, he stressed.
The prime minister focused on the damage inflicted on global financial markets as well as on non-financial industries by the current crisis. Banks are now hesitant to extend loans due to a liquidity squeeze around the world, and this situation is causing distress in investment and consumption, he explained. He noted that the consequence of this is a slowdown in economies in almost every country, including the most developed ones, not just in Turkey. Even they are face-to-face with the danger of falling into recession, he said. Besides, high energy and food prices are magnifying inflationary pressures while contributing to recession fears, he asserted.
According to Erdoğan, all these factors are leading to a withering of economic activity in developing countries and a rapid capital outflow from developed nations. As a result, national currencies are losing value while asset prices are plummeting at tremendous rates. "Naturally, no one should expect Turkey to stay completely clear of the negative effects of this turbulence, which is shaking the entire world, since our country has integrated into the global system in terms of both commerce and finance.
I want to emphasize an important point here one more time: In today’s world, in the current economic environment, it is not possible to develop and increase the level of overall prosperity without integrating into the world,” he said.
The grand development projects to eliminate regional disparities such as the Southeastern Anatolia Project (GAP), the Eastern Anatolia Project (DAP) and the Konya Plain Project (KOP) are also very important steps that will contain the effects of the global crisis in the middle term, the prime minister said. These projects will be utilized fully in making the crisis an opportunity for Turkey.
‘Turkey is no longer weak’
Thanks to the resilience obtained through radical reforms after the 2001 financial crisis, the Turkish economy has managed to overcome the worst of the global crisis, Erdoğan claimed. “Turkey is no longer a weak economy against the crises and fluctuations, unlike the past. Fiscal discipline, cautious monetary policies, a stronger financial sector, structural reforms, high foreign currency reserves, improvements in public debt structuring and the freely floating exchange rate mechanism have all helped the economy hold up a strong shield against the shocks,” he said.
The Iraq war, the deep fluctuations in May and June of 2006 and the war between Russia and Georgia were all serious trials for the Turkish economy and it has not failed in any of them, the prime minister was proud to claim, as his government was steering the economy during these incidents.
However, Erdoğan admitted that the economy would not continue to enjoy the high growth rates it has experienced over the last six years. A slowdown is almost unavoidable, he stated.
“The recent developments may be harbingers of a serious recession, especially in the US and the European Union, both of which are major trade partners. This will naturally cause a drop in demand for our exports to these countries,” he said. The strategy of diversifying trade with new markets in the Middle East, Africa and some regions in the Pacific has proven to be helpful in today’s gloomy picture, the prime minister underlined, praising these steps as factors that will contain the adverse effects of the crisis.
The budget performance was a clear indicator of his government’s overall success in the economy’s management, he said, citing some of the latest figures: Turkey has achieved a YTL 40.9 billion primary surplus in the first eight months of the year and in the same period the budget saw a surplus of YTL 4.6 billion.
On inflation, Erdoğan claimed that Turkey would achieve permanent stability in price levels. The inflation rates were hovering above 70 percent annually just seven years ago, Erdoğan recalled, pointing out that the rate was 11.77 percent as of August after a period of single-digit levels. The inflation had risen above 10 percent again for several reasons, such as skyrocketing oil and food prices, which are not under the control of the central bank, he noted.
The central bank protected its decisive stance during this period, Erdoğan emphasized, and went on to say in a hopeful tone: “As soon as the supply-side pressures disappear, a strong declining tendency will once again prevail and this will contribute positively to the decreasing of the high risk premium our country now faces.”
Important points stressed by the prime minister:
* ”There will be no investment, production, exports or employment in an environment where expectations are negative. The magic key to getting through such hard times is the provision of confidence and stability.”
* “Studies to draw up a new agreement with the International Monetary Fund are in the final stages. I believe the eventual decision will come out next month or in November at the latest. We will come to a conclusion together with IMF officials shortly after finalizing the talks between us.”
* “About high interest rates, we stand on completely different ground than the central bank. Still, the government is far from any step that could cause an assault on the bank’s independence. But I am speaking on behalf of industrialists on this issue to say that there is enough room to decrease interest rates to slightly lower levels. This is my opinion, but there are some in the Cabinet who do not share this view.”
* “We favor floating exchange rates and reject fixed rates. If the exchange rates were fixed as they were before the 2001 crisis, we would be suffering from exactly the same crises of the past.”
* “We are definitely not planning to introduce a new tax. On the other hand, there is a serious level of tax evasion in Turkey today stemming from the unregistered economy. We are planning to cut tax rates if we succeed in registering more economic activities.”