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2009: Emerging from the storm
Turkey did not escape unscathed by the colossal economic waves of the greatest economic crisis since the Great Depression, as it found itself knee-deep in unemployment, budget deficits and a lack of domestic and global demand.
With national governments rushing to avoid a long-lasting disaster rivaling the stagnation of the 1920s, stimulus packages abounded. The US created a domino effect with its massive American Recovery and Reinvestment Act -- entailing $787 billion in government spending aiming to grab hold of the economy before its unavoidable dip -- as the EU and other nations followed suit. Turkey did not have the luxury of not responding as it became obvious that 2009 would be a year of crises.
The crisis did not miss many opportunities to hit Turkey’s economy where it hurts most. Unemployment, exports and the budget were shaken with the burden of the crisis. These tremors, however, will not turn out be as apocalyptic as first assumed, as signs of recovery emerged near the end of the year.
Revisiting 2001
Gross domestic product (GDP) took a 6.5 percent dive in the fourth quarter of 2008 at the onset of the crisis, a dip that hadn’t been experienced since the 2001 crisis, which lasted a mere three quarters before stepping onto the turf of growth. This crisis, it seems, is more persistent than the financial crisis of 2001, as the economy has shrunk for four consecutive quarters. A 14.7 percent contraction in GDP was experienced in the first quarter of 2009, a crisis in its own right, followed by a further 7.9 percent in the second quarter. The third quarter, however, revealed that a recovery could be under way, as the economy showed signs of improvement by shrinking just 3.3 percent. Whether this improvement carried over to the fourth quarter remains to be seen, though various actors in the private and public sphere are expressing hope for 2010.
A lack of lending and liquidity in the market prompted the central bank to take extreme measures starting in November 2008, bringing interest rates down from 16.75 percent to a historic low of 6.5 percent, hitting single digits for the first time in Turkey’s history. Although Turkey’s history of high inflation made realizing single digit lending rates seem impossible, Central Bank Governor Durmuş Yılmaz took the bold moves necessary to see through the world’s biggest rate-cutting cycle during the crisis. A lack of domestic demand to heat up inflation meant that the central bank was not hindered by the traditional worry of putting pressure on prices by lowering rates. Turkey’s experience with inflation and high interest rates meant that regardless of the seemingly ripe conditions for cutting rates, it was an unprecedented move both domestically and globally. It remains to be seen whether a recovery in 2010 will bring along with it a rolling back of these cuts and a clamping down on the cheap money in circulation.
Unemployment climbing
Unemployment, which had hovered at around 10 percent since 2001, jumped to more than 16 percent in February, the highest Turkey has seen in more than two decades, before cooling down to 13.4 percent in September. Along with the gradual decrease in unemployment, however, a parallel increase in the labor force participation rate followed. It rose from the beginning of the year to hit 49 percent, with more than 25 million people in the labor force, another record for Turkey. Thus, this can largely be seen as a success during a year fraught with unfortunate economic developments: Unemployment decreased while the number of people active in the labor force was increasing.
Turkey, which is highly connected to global markets, especially regarding trade, also suffered from the global slump in demand. Ten-month export figures revealed that $83.2 billion in exports were realized compared to the $114.9 billion in exports in the first 10 months of 2008, a whopping decrease of 27.6 percent. On the theme of recovery, exports showed their first signs of recovery, as exports in October 2009 surpassed those of the same month the previous year by 4 percent. While exports to the Middle East and North Africa increased throughout the crisis period, these have mainly been trumped by the decreases in exports to Turkey’s traditional markets, such as the EU. Unfortunately, Turkey lost market share in these traditional export markets as exporters were especially affected by the crisis.
The share of exports to the EU out of Turkey’s total exports increased to over 50 percent in September and October, from 41.75 percent at the end of 2008. Moreover, exports to the EU increased for the first time in October compared to last year, signaling that the economy’s trade dynamics may be normalizing.
Fiscal consequences
Much like the rest of the world struggling with the fiscal burden of their stimulus plans, Turkey WAS looking at a budget deficit over $40 billion after various tax discounts designed to stimulate demand were enacted, along with reforms to the social security and national health system leading a 34.4 percent increase in spending in the first 10 months of 2009 compared to the same period last year. Although talks of tax hikes to cover this budget deficit are currently on the horizon, it would undo all of the efforts of the government to stimulate the economy and would put a further burden on an industry struggling to climb out of the crisis. It remains to be seen whether the government is willing to risk a double-dip recession by raising taxes.
2009 was a relatively good year for Turkey compared to its previous experience with crises. Its credit rating was raised by two notches, it brought interest rates down to a historic low while keeping inflation in check, raised the number of employed to respectable levels, showed unexpected signs of recovery near the end and left businessmen, investors and the public with a glimpse of better years to come. It remains to be seen what tricks the Turkish economy has in store for 2010.
Situmulus packages revealed Jan. 1 -- The new Turkish lira (YTL) loses its “new” and becomes the Turkish lira (TL), while the old YTL can be used until the end of 2009. Jan. 8 -- The formal meetings to discuss the 20th stand-by deal between the International Monetary Fund (IMF) and Turkey commence. Jan. 14 -- International credit rating agency Fitch keeps Turkey’s credit rating at BB-, with a stable outlook. Jan. 15 -- The Central Bank of Turkey drops interest rates by 2 percent, the biggest drop since 2005, bringing the borrowing rate to 13 percent in a monumental effort to fight recession. Feb. 1 -- IMF First Deputy Managing Director John Lipsky states that there have been important developments in the stand-by talks. Feb. 9 -- IMF stand-by talks are suspended by Prime Minister Recep Tayyip Erdoğan, who says Turkey can move forward without the IMF. Feb. 14 -- US Congress approves a massive $787 billion stimulus package. Feb. 19 -- The central bank brings down borrowing rates another 1.5 percentage points to 11.5 percent. March 10 -- After the TL/dollar exchange rate hits a record 1.8250, the central bank starts to sell foreign currencies in the open market, selling nearly $50 million in the first day. March 13 -- Prime Minister Erdoğan reveals the fourth stimulus package, including value added tax (KDV) and private consumption tax (ÖTV) discounts, price supports for exporters and discounted credit. March 19 -- The central bank continues to decrease the borrowing rate, bringing it down by 1 percent to 10.5 percent. April 1 -- World leaders at the G-20 conference decide to transfer $1.1 billion in funds to the IMF and other development agencies. April 12 -- Talks with Turkey resume over a three-year IMF stand-by deal, and State Minister Mehmet Şimşek reveals that although the two parties have come to a mutual agreement on the principles of the deal, they have not reached a final agreement. April 13 -- Turkey makes public its EU pre-accession economic program, predicting a 3.6 percent contraction of the economy in 2009, 3.3 percent growth in 2010 and 4.5 percent growth in 2011. April 14 -- The cost of 36 measures taken against the economic crisis is estimated to be $54.4 billion spread over 2008 to 2010. April 16 -- The central bank decreases short-term interest rates by 0.75 percent, bringing the overnight lending rate to 9.75 percent. April 22 -- The IMF releases its World Economic Outlook, noting that it expects the Turkish economy to contract by 5.1 percent in 2009 but grow 1.5 percent in 2010. April 25 -- State Minister Şimşek states that talks with the IMF over a three-year stand-by agreement are still under way. May 5 -- The central bank continues to lower short-term interest rates, with a 0.5 percent cut, bringing the overnight lending rate to 9.25 percent. May 29 -- The World Bank lends Turkey $600 million for loans to the private sector for a renewable energy and energy-efficiency project. June 1 -- Turkey and Serbia sign a free trade agreement. June 4 -- The government reveals a TL 4 billion stimulus package aimed at supporting investments, increasing employment and making loans to small and medium-sized enterprises (SMEs). June 16 -- The ÖTV and KDV discounts -- enacted to stimulate demand in sectors such as appliances and automobiles -- are extended an extra three months. July 1 -- The IMF issues $150 billion in bonds to raise funds, marking the first time the fund has had to make such a move in its 64-year history. July 13 -- An intergovernmental agreement is signed in Ankara regarding the Nabucco natural gas pipeline, marking a “turning point” in the project’s lifetime. İstanbul hosts IMF-WB summit Aug. 4 -- Prime Minister Erdoğan and Russian Prime Minister Vladimir Putin sign a bilateral natural gas and petroleum agreement. Aug. 18 -- The central bank drives down interest rates another half a percentage point for an overnight lending rate of 7.75 percent. Sept. 2 -- The IMF allocates 883.1 million special drawing rights (SDR) to Turkey, or roughly $1.4 billion. Sept. 8 -- Doğan Yayın Holding is fined TL 3.76 billion tax for tax fraud. Sept. 16 -- The government’s medium-term economic program is revealed. Deputy Prime Minister Ali Babacan unveils the program’s growth targets, stating that a 6 percent contraction of the economy is expected in 2009, with a lapse back into growth in the first quarter of 2010. Sept. 17 -- The central bank decreases interest rates to an all-time low of 7.25 percent, after a 50 basis point drop. Sept. 18 -- Turkey’s credit rating is upgraded by two agencies, as Standard & Poor’s increases Turkey’s rating from negative to stable and Moody’s increases its rating from stable to positive. Sept. 28 -- Greece & Turkey 30 Index (GT-30) is unveiled in cooperation between the İstanbul Stock Exchange (İMKB) and the Athens Stock Exchange (ATHEX). Sept. 30 -- The IMF-World Bank Annual Meetings commence in İstanbul. Oct. 4 -- Deputy Prime Minister Babacan notes that no IMF program has been in place since May 2008 and that a new stand-by agreement has not been signed because the government is not satisfied with the IMF’s terms. Oct. 5 -- Emerging markets such as Turkey, China, Brazil, Russia and India demand more voting rights in the IMF during the annual meeting. Oct. 6 -- Euromoney Magazine selects Central Bank Governor Durmuş Yılmaz as the central bank governor of the year. Oct. 7 -- The IMF-World Bank meetings come to end, concluding on the “İstanbul Decisions,” entailing reforms of quotas and voting rights and tighter regulation of the global financial system. Oct. 12 -- The Nobel Prize in economics is awarded to Elinor Ostrom and Oliver Williamson, marking the first time that a woman has been awarded the prize. Oct. 15 -- The central bank brings interest rates down another 50 basis points to 6.75 percent. Oct. 26 -- The Ministry of Agriculture releases regulations on food items containing genetically modified organisms (GMOs). Nov. 5 -- The 25th session of the Standing Committee for Economic and Commercial Cooperation of the Organization of the Islamic Conference (COMCEC) starts in İstanbul, with 10 Organization of the Islamic Conference (OIC) nations signing a preferential trade agreement to go into effect in 2010. Nov. 19 -- The central bank continues its interest rates cuts, lowering rates by 25 basis points to 6.5 percent. Dec. 3 -- Turkey becomes one of the 13 nations whose credit rating is increased this year when international credit rating agency Fitch upgrades Turkey’s credit rating by two notches, from BB- to BB+. Gold hits a historic high of $1,227.50 an ounce as investors flock to buy it as a safe investment. Dec. 8 -- Industrial production increases for the first time since the onset of the crisis, breaking a 14-month decline with a 6.5 percent increase in October compared to the same month in 2008. Dec. 10 -- The Treasury’s 2010 budget is released, foreseeing no borrowing from the IMF. Central Bank Governor Durmuş Yılmaz says, “The budget was formed with no IMF deal in mind.” Dec. 17 -- The central bank keeps interest rates steady at 6.5 percent, ending the world’s biggest rate-cutting cycle. |
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