The high interest rates, far above the inflation rate, that the government securities produced, provided incredibly high dividend yields to equity owners abroad, due to the liberalization of capital movement. The financial arbitrage proceeding that used to average 20 percent, and rose to 40 percent by the end of 1991, enabled Turkey to transfer its value assets internationally? Moreover, as a result of almost rendering the exchange market obsolete, enormous resources were transferred abroad through legal or illegal means. The amount of resources transferred is so huge that it is estimated at $200 billion in the last 20 years.
This is determined from a report entitled, "Suggested Model for Decreasing Public Deficits," prepared by the Finance Ministry and to be submitted to the government.
The main reason for this loss of strength, that finance experts have put forward, is obvious: Excessive debt burden This burden, as we can still remember, reached its climax with the 2001 crisis and Turkey was unable to manage its debts. Political instability dashed hopes for the future.
The political stability and determination shown in the application of the economic program after the 2002 elections, reversed the situation [for the better]. During the months that followed, significant positive improvements were experienced. The uncertainty caused by the Iraq war was overcome in a short time, and towards the end of 2003, improvements became so very obvious. While the Treasury's internal borrowing interest rate was 60 percent at the beginning of 2002 and 28 percent at the end of that year, the maturity period rose from 9.5 months to 19 months. On the other hand, the average annual maturity duration rose to the 12-month level. In the first four months of this year, the maturity duration rose to 15 months. The average interest rates, 46 percent in 2003, decreased to 24.7 percent in the first quarter of this year. The cost of foreign-exchange indexed debts fell from 6.6 percent to 4.3 percent.
Due to the positive atmosphere coming after so many turbulent months, borrowing at the foreign markets eased, the maturity period extended and costs diminished.
Then, what happened to total debts? Have they increased or decreased?
The economy administration had declared that its primary policy was to bring down the debt stock. The high primary surplus in the budget is of paramount importance in bringing down the debt stock , but it is alone not an adequate factor. Interest rates, the extension of maturities and growth are also important.
We have mentioned interest rates and the extension of the maturities. The movements are in a positive way. With the decline in inflation, it is possible that interest rates will further decrease. It is estimated that the economic growth rate will rise to 5 percent and the primary surplus will be 6.5 percent as planned, if no crisis is generated again.
The consolidated debt stock was $202.7 billion as of 2003. This figure rose to $217.9 billion in April, but by the end of April it fell to $205.5 billion. In the total debt stock that month , 41 percent owed to the domestic markets and 28.7 percent to the public financial institutions constituted the biggest share. On the other hand, foreign debts amounted to 30.3 percent.
In order to decrease exchange rate risks, with the application that started in 2003, the type of currency and the foreign-exchange indexed debts rates were expected to decrease, and within a year, the rates tumbled from 30 percent to 19 percent.
To state it more briefly without mentioning the figures, the most crucial indicator is the ratio of public debts to the GNP. From this perspective the picture is clear. The ratio of the net public debt stock to the GNP has been decreasing since 2002. The ratio that was 61 percent in 2000, rose to 90.9 percent in 2001, was 78.6 percent in 2002 and fell to 70.5 percent last year. If the burden of [the siphoned] Imar bank, that amounted to TL 6.5 quatrillion had not been placed on the state's shoulders, this rate would have been far much lower.
The ratio of debts to the gross national income is expected to decrease. Treasury Undersecretary Ýbrahim Halil Canakci stated that if the present parameters remain in effect, the ratio will fall to 50 percent by 2008.
This year, it is most likely that exchange rates will continue to decrease and the budget balance and growth target seem likely to be achieved. If stability is maintained, there is nothing that can prevent the ratio mentioned above from being 50 percent!
June 9, 2004
