{
  "title": "Turkey's Economy: A Future Full of Promise, Speech by Anne O. Krueger, First Deputy Managing Director, IMF",
  "publication": "IMF News, May 5, 2005",
  "sourceUrl": "https://www.imf.org/en/news/articles/2015/09/28/04/53/sp050505",
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  "summary": "Given at the Istanbul Forum, Istanbul, Turkey",
  "publishDate": "2005-05-05",
  "sections": [
    {
      "heading": "Overview and context",
      "content": "- Speech delivered at the Istanbul Forum, Istanbul, Turkey on Thursday, May 5, 2005.\n- Main objective: review recent accomplishments in Turkey’s economy and outline opportunities and reform priorities to raise potential growth and living standards.\n- Emphasis: macroeconomic stability achieved to date as foundation; necessity of continued structural reforms to raise potential growth and secure long-term gains."
    },
    {
      "heading": "Recent achievements",
      "content": "- Economic turnaround since the crisis years of 1999-2001 after a banking crisis and chronic inflation.\n- Key performance indicators cited:\n  - Average real GNP growth over the past three years: close to 8%.\n  - Real GNP growth last year: just short of 10%.\n  - Inflation rate three years ago: 70%.\n  - Current inflation rate: close to 8%; lowest level in 35 years.\n  - Primary surplus last year: almost 7%, ahead of the government's 6.5% target.\n  - Ratio of public debt to GNP: has fallen by 30 percentage points of GNP since its 2001 peak.\n- Observations:\n  - Macro- and structural reforms in monetary, fiscal, exchange rate policies, banking system, and public finances have transformed policymaking and strengthened credibility.\n  - Reforms have cumulative beneficial impact; each reform increases returns to other reforms."
    },
    {
      "heading": "Inflation",
      "content": "- Historical problem: chronic inflation averaged over 60% a year from the 1980s onwards.\n- Recent progress:\n  - Spectacular decline in inflation alongside fiscal consolidation and healthy growth.\n  - Central Bank has outperformed its end-year target for three consecutive years.\n- Policy objective:\n  - Further reduction of inflation desirable; suggested target range: 2% - 4%.\n  - Planned introduction of inflation targeting next year expected to facilitate further declines.\n- Rationale:\n  - Low inflation improves resource allocation, decision-making by businesses, convergence with industrial economies, and reduces costs borne disproportionately by the poor.\n- Notable textual item to preserve as stated: the global downturn of 2001-2202 is referenced in the speech."
    },
    {
      "heading": "Fiscal policy",
      "content": "- Root cause of past inflation: fiscal imbalances.\n- Achievements and current status:\n  - Large fiscal adjustment undertaken over a relatively short period enabled significant reduction in public debt burden and risk premium.\n  - External debt is still more than 50% of GNP.\n  - Gross public debt is over 75% of GNP.\n  - Large part of public debt indexed to foreign currencies or linked to short-term interest rates.\n- Policy priorities:\n  - Maintain the primary surplus target to enable further reductions in the debt burden.\n  - Further reduce debt-to-GDP ratio and smooth the debt profile to lower vulnerability to rising worldwide interest rates and exchange rate volatility.\n- Observation:\n  - High primary surplus and declining inflation have not inhibited growth; rather, macroeconomic stability enabled rapid growth."
    },
    {
      "heading": "Structural reforms — priorities and specific areas",
      "content": "- General objective: raise potential growth without fueling inflation; make economy more flexible and market-oriented; enable rapid responses to incentives.\n- Financial sector:\n  - Banking crisis prompted significant reforms: regulatory framework aligned closer to international standards; state banks restructured and recapitalized; banks shifting portfolios away from government paper to expand commercial and consumer lending.\n  - Government submitted a new Banking Law to Parliament to address weaknesses identified by the Imar Commission Report and to tackle bank intervention and resolution problems observed during the crisis.\n  - Continued evolution of the financial system is necessary to avoid its acting as a brake on growth.\n- Tax and budgetary transparency:\n  - Reforms to improve budgetary transparency and tax system underway; more envisaged.\n  - High tax rates and complexity encourage participation in the informal sector.\n  - Policy tools recommended: streamline and simplify the income tax system, lower tax rates, broaden corporate tax base, improve compliance to reduce distortions and increase revenues.\n- Expenditure and social security:\n  - Pension deficit widened from 2.5% of GNP in 2000 to 3.5% in 2004; on current trends could grow to 7% of GNP over the longer term without further reforms.\n  - Overall social security deficit (including health expenditures) could be more than double the current 4.5% of GNP in the long run.\n  - Legislation already submitted to Parliament expected to reduce the annual pension deficit by nearly 1% of GNP over a ten-year period and bring the deficit to below 1% of GNP over the longer term.\n  - Additional expenditure reforms needed in civil service pay and employment, health and education spending, the judiciary, and government subsidies for farmers to free resources for infrastructure, education, and growth-enhancing spending.\n- Privatization and competition:\n  - Privatization of government assets to improve competition and reduce burden on state sector.\n  - 2003 Foreign Direct Investment Law noted for leveling the playing field for foreign and domestic investors.\n  - Investment Advisory Council established in 2004.\n- Business climate and regulatory reform:\n  - Reforms aimed at cutting red tape, improving court system efficiency, aligning business standards with the EU.\n  - Administrative improvements achieved:\n    - Opening a business now takes 3 procedures instead of 13.\n    - Average time to register a business recently cut to less than a week.\n    - Plans to create a one-stop-shop for business permits.\n- Labor market reform:\n  - Labor market rigidities and high minimum wages discourage hiring and encourage informal sector participation.\n  - Compliance costs: firms in Turkey must pay 112 weeks wages to lay someone off, compared with 40 for the OECD average.\n  - Turkey scores poorly on measures such as difficulty of hiring workers and rigidity of working hours.\n  - Evidence cited: when employers are freer to fire workers, they start hiring; increased flexibility in labor markets seen in countries like the United States, the United Kingdom, Australia and Chile associated with employment gains.\n  - Policy recommendation: labor market reform to increase wage and price flexibility, encourage hiring, reduce unemployment, raise real incomes, and reduce poverty."
    },
    {
      "heading": "Conclusion and policy implications",
      "content": "- Macroeconomic stability is necessary but not sufficient; ongoing structural reform is essential to maintain competitiveness amid globalization and technological change.\n- Timing: favorable—prospects for sustained growth are better than in decades; economic upturns provide an opportune backdrop for reforms because benefits materialize more rapidly and adjustment costs are lower.\n- Central message:\n  - Continue and deepen structural reforms across multiple fronts simultaneously to make past achievements irreversible.\n  - The payoff: higher growth potential and a more rapid rise in real incomes—benefits within Turkey’s grasp.\n- Final exhortation: maintain reform momentum to secure cumulative benefits and broader convergence with industrial economies.\n\nAnne O. Krueger, First Deputy Managing Director, International Monetary Fund — Speech delivered at the Istanbul Forum, Istanbul, Turkey, Thursday, May 5, 2005.\n\n---\n\n\n References\n\n- Republic of Türkiye and the IMF\n- United States and the IMF\n- Speeches\n- Anne O. Krueger\n- PRESS CENTER\n- https://www.imf.org/en/home\n\nSource: https://www.imf.org/en/news/articles/2015/09/28/04/53/sp050505"
    }
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    "Published: May 5, 2005",
    "Speech delivered at the Istanbul Forum, Istanbul, Turkey on Thursday, May 5, 2005.",
    "Main objective: review recent accomplishments in Turkey’s economy and outline opportunities and reform priorities to raise potential growth and living standards.",
    "Emphasis: macroeconomic stability achieved to date as foundation; necessity of continued structural reforms to raise potential growth and secure long-term gains.",
    "Economic turnaround since the crisis years of 1999-2001 after a banking crisis and chronic inflation.",
    "Key performance indicators cited:",
    "Observations:",
    "Historical problem: chronic inflation averaged over 60% a year from the 1980s onwards.",
    "Recent progress:",
    "Policy objective:",
    "Rationale:",
    "Notable textual item to preserve as stated: the global downturn of 2001-2202 is referenced in the speech.",
    "Root cause of past inflation: fiscal imbalances.",
    "Achievements and current status:",
    "Policy priorities:",
    "Observation:",
    "General objective: raise potential growth without fueling inflation; make economy more flexible and market-oriented; enable rapid responses to incentives.",
    "Financial sector:",
    "Tax and budgetary transparency:",
    "Expenditure and social security:",
    "Privatization and competition:",
    "Business climate and regulatory reform:",
    "Labor market reform:",
    "Macroeconomic stability is necessary but not sufficient; ongoing structural reform is essential to maintain competitiveness amid globalization and technological change.",
    "Timing: favorable—prospects for sustained growth are better than in decades; economic upturns provide an opportune backdrop for reforms because benefits materialize more rapidly and adjustment costs are lower.",
    "Central message:",
    "Final exhortation: maintain reform momentum to secure cumulative benefits and broader convergence with industrial economies.",
    "[Republic of Türkiye and the IMF](http://www.imf.org/external/country/TUR/index.htm)",
    "[United States and the IMF](http://www.imf.org/external/country/USA/index.htm)",
    "[Speeches](https://www.imf.org/en/news/searchnews)",
    "[Anne O. Krueger](https://www.imf.org/external/np/omd/bios/ak.htm)",
    "[PRESS CENTER](http://presscenter.imf.org/)",
    "[https://www.imf.org/en/home](https://www.imf.org/en/home)"
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