WB lauds medium-term economic program, warns of unemployment

“The World Bank's main focus at this time is to be a partner with the government to help Turkey come out of the economic slowdown,” Zachau told Today's Zaman in an interview. He cited unemployment as the top policy issue that needs to be addressed in both the short term, as the crisis has resulted in millions being laid off, as well as the long term, as demographics add ballooning numbers to the labor force every year, creating the need for an ever-increasing role of the private sector to create jobs.

Ultimately the capacity of the government to combat these programs in the short to medium term depends on a combination of forces external to Turkey which lie in the hands of the global economy as well as a number of macro measures that can be undertaken by the government. The government's recently released mid-term economic program (MTEP) forecasts how these two variables will interact and ultimately how it will influence the Turkish government's capacity to address these social issues identified by the World Bank as priority areas. Zachau expressed satisfaction with the program.

“In our view, the program is realistic and credible,” he said, adding that “it will help bring Turkey on the path of medium-term growth.” One of the issues that Zachau and the rating agencies were most happy with was the improving fiscal balances of the government, with the budget deficit declining from 6.6 percent of gross domestic product (GDP) in 2009 to 4.9 percent in 2010, and the public deficit slipping from 2.1 percent to 0.3 percent.

“We think a reduction by 1.7 percentage points is realistic and attainable,” he told Today's Zaman. “You have to look at it in the context of revenue expenditure trends. If you look at government revenues and expenditures, revenues are going up and expenditures are going down. … When growth goes down, revenues [usually are] going down. By turning this around, the government is ambitious. But the pace is realistic. We welcome that it is realistic and not overambitious.”

It is realistic, according to him, because these reforms are being implemented in tandem with a number of reforms that the bank and Turkey have been working on together for some time and which target the efficient implementation of medium-term policies that are hoped will achieve multiple goals, including improving balances. Structural reforms in taxation as well as municipal financing schemes will be one issue contributing to the improving fiscal picture, as will specific reforms worked on with the bank in order to improve the dexterity of the energy, health and social security sectors.

But while macro targets were important, Zachau said the bank's most serious concerns and ones the government would need to address revolve around resolving unemployment. “Jobs are the single most important challenge,” Zachau said, singling women out as an especially important demographic to support. “Only a quarter of women have been in the labor force,” he said, noting that the crisis has exacerbated the situation, raising the number of unemployed women to “unprecedented levels.” Zachau identifies employable “skills,” and bringing up their standards as being “probably the single most important challenge.” He cited better productivity jobs as being “essential for Turkey because of demographic trends.” But, although the bank places a great deal of importance on the role of the private sector, and especially small and medium-sized enterprises (SMEs), in the process of creating jobs, just how they will be able to fulfill this role in a context of contracting finance and evaporating bank funding remains a challenge. Many SMEs have been on the verge of despair over a lack of available credit to fund business.

Layoffs from SMEs have been the single largest contributor to the skyrocketing unemployment figures. In order to bridge the financing gap, the World Bank has been increasing funding for projects that advance the goals of helping SMEs improve social conditions. Since the outbreak of the crisis, the World Bank has opened a credit line amounting to $200 million to serve this purpose. World Bank officials say that almost all of it has been used up. Since 1999 the bank has extended more than $1.8 billion to support exporters and SMEs. He also said that developing private sector financing instruments, such as bonds, now virtually nonexistent in Turkey, would be another way of contributing to private sector investment. And there have been some recent success stories. Zachau points to AMAK, a company that turned a waste dump outside of Ankara into a hub of economic activity, as one example. The company turning waste into clean energy has not only provided employment for hundreds, but it has also cleaned up a stench which had eroded real estate prices even kilometers away and improved the well-being of thousands. “Where there once used to be a dump, they have a greenhouse where you can grow tomatoes.” Zachau pointed to this as “an example of a small company that has created a win-win situation.”