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The Turkish economy at the beginning of 1991.

The Turkish Economy at the Beginning of 1991

The unexpectedly rapid collapse of the Communist bloc and reunification of Germany that took place last year had a wide-ranging effect on the Turkish economy - as these events did on the economy of the whole world - for they led to hopes of new and positive economic developments. The Gulf crisis that broke out at the beginning of August however was a great misfortune and the favourable pictur ethat had begun to appear during the first half of the year turned murky in the second.

The circumstances that the crisis led to had an effect first upon our export trade and then upon our tourism industry. The public and - especially - the private sector were to be observed postponing their investment decisions. Inflationary pressures, which were around 27% during the first half of the year, rose to 60% by year's end.

The most adverse aspect to the Gulf crisis however may be said to have been experienced in the further growth of the financing deficits that already existed on the public side. The consolidated national budget for 1990, for example, closed out showing a deficit of 11.5 trillion liras.

Treasury financing and annex budgets made something of a contribution to covering these deficits but there was also a rapid increase in external and - especially - internal borrowing and the volume of monetary issue shot up from TL 8.5 to TL 14.3 trillion. On the positive side, mention should be made of the US $2.5 billion or so of aid in the form of unilateral transfers that were received, during the last two months of the year, in order to cover the losses brought about by the Gulf crisis.

While the general aspect of the economy's development was positive, the addition of the Gulf crisis and a number of social problems turned into a situation of imbalance. A flurry of strikes during the last few months of the year led to disruptions in labour/employer relations and in production.

In short, we can say that the Turkish economy at the end of 1990 had been forced into a state of unstable growth by the existence of factors that were primarily of a political nature.

The Growth Rate

and Inflation

Despite negative developments in the economy that were the result of such external factors however, the rate of growth in the gross national product (GNP) reached 9%, a record for recent years. When one recalls that the rate of this growth in 1989 was a mere 1.6%, the 9% rate of growth achieved in 1990 should be regarded as a positive development indeed.

The greatest contribution to this growth was made by agriculture: in that sector the increase in added value was 11.2%. Another factor deserving consideration the achievement of this rate of growth is that this year it was increases in wages and salaries and - to a degree - in agricultural commodity prices that played an important role in this growth and that it was fostered by domestic demand. Furthermore, the increase in domestic production and the growth in imports that was achieved thanks to the existing availability of foreign exchange reserves also resulted in the appearance of a distinct liveliness in the economy.

At the same time however, inflation persisted in 1990 causing it to maintain its position as the number-one problem in the economy. One should also add that it was the public sector that again led the way in price increases: private sector price increases consistently trailed behind them.

The Program and

Budget for 1991

The annual program for 1991 sets the following principal macro-level targets. * The GNP growth rate targeted for the

Turkish economy in 1991 is 5.9%. * The average twelve-month rate of inflation

will be 45%. Total fixed-capital investments

will increase 6.8%. The public

sector's share of these investments will

shrink while that of the private sector

will increase. * The country's exports are expected to

reach US $14.1 billion in value in 1991

while imports will be worth US $23.1

billion. This implies that the foreign trade

deficit will be up to US $9 billion. * At the same time, tourism revenues will

rise to US $3.3 billion and workers'

currency remittances to US $3.4 billion.

Other invisibles are expected to amount

to US $ 4.9 billion. Despite this however,

the current accounts balance is

expected to show an overall deficit of

US $2.37 billion.

Notwithstanding the picture painted by the program, it is possible to foresee thaat certain problems in our foreign relations are going to become unavoidable owing to the effects of the Gulf war.

The Foreign

Exchange Balance

It is expected that the current accounts balance will show a US $2.5 billion deficit as of the end of 1990. When one considers that current transactions showed a US$ 790 million surplus at the end of the previous year, it becomes clear that there is something awry in our foreign economic relations.

The biggest cause of this upset lies in the foreign trade deficit: in 1989, the deficit amounted to US $4,135 million; in 1990, it is expected to have more than doubled to about ten billion dollars. The biggest reasons for this deficit is a rapid surge in imports while exports have grown but modestly. Neither tourism revenues nor workers' currency remittances have proven adequate to cover this deficit; indeed, not even US $2,513 million worth of unilateral transfers during the year were able to prevent the current accounts balance from closing out with a deficit.

One also should immediately note that one factor that prevented the foreign payments balance from being even worse than it is was a rapid upsurge in "capital activity". Short term capital activity, known in the trade as "hot money", has become the most influential agent in feeding the central bank a supply of foreign exchange. This money has been coming into the country at an ever-increasing rate in order to take advantage of the spread between the foreign exchange rates and the rates of interest that banks offer on fixed-term deposits. The result has been a rise in the central bank's foreign exchange reserves, which stood at US $ 10.8 billion a year end.

Happy as this situation may be however, it is worth recalling that, even though the central bank's reserves of hard currency stand at their highest level in recent years, "hot money" is hardly a sound or reliable source of finance.

Hard Times in the

Tourism Industry

Blessed with natural and historical treasures, Turkey has a great tourism potential. notwithstanding this however, for many years the sector failed to receive the serious attention it deserved and the efforts that were made to attract foreign tourists rarely went much beyond glib window-dressing.

There has in fact been significant development in Turkish tourism in the last five years. That western tourists are less interested nowadays in countries like Greece, Spain, and Yugoslavia has of course contributed to this development but it is also true that tourism-related policies in our country have become substantially more realistic in many cases. There has been a steady rise in the number of tourist facilities and, with it, in the bed capacity as well. Telecommunications are now much more available than they used to be and tourists are able to find the brands of goods (alcohol and tobacco products at least) with which they are familiar. Most important, they no longer need to fall into the clutches of the black market in order to get a fair deal on their currency transactions. It is thanks to things such as these that the number of tourist arrivals has shot up from what was once a mere million to 5.3 million in 1990 and tourism income to US$ 3.3 billion.

The developments in the tourism industry in Turkey are - by European standards at least - record-breaking though it cannot be said that the industry itself is up to those standards. There are still shortcomings in terms of infrastructure and service quality and it is clear that much more needs to be done in both these areas. Another point that contributes to putting off tourists' interest in Turkey is the inconsistency in pricing that they encounter in facilities.

Nevertheless the government has at least become aware that tourism is an important source of foreign exchange earnings and has not neglected to make a serious effort to encourage this industry. One result is that, while tourism-related investments once accounted for a mere half of one percentage point of total investment, this year its share rose to 4% overall and was worth TL 201 trillion.

Another result of such encouragement is the sprouting up of a large number of big five-star hotels in our country. At the same time however, shortcomings in promotion, training, marketing, and transportation activities persist. Furthermore, unfortunate building development policies have prevented the industry from achieving the coordinated and stable structural growth that might have been expected of it.

The biggest blow of Turkish tourism this year was wielded by the Gulf crisis that broke out at the beginning of August and, at the time of this writing, still remains unresolved. The Gulf war has had a devastating effect on Turkey's tourism income. For the time being, we can do no more than hope that the events in the Gulf will come to an end as quickly as possible and that their effects will at least not persist into the coming year.

HIGHLIGHT

The outbreak of the Gulf crisis at the beginning of last August was a great misfortune not only in human terms but politically and economically as well. The favourable picture that had begun to appear during the first half of the year turned murky in the second. In Turkey, one of the most adverse aspects of Iraq's Kuwaiti misadventure was to be witnessed in the further growth of the financing deficits that already existed on the public side. In the private sector, Turkey's export and tourism revenues withered as markets shrank and people postponed vacations in their uncertainty about the future. In the following article, Dr. Haluk Cillov discusses the performance of the Turkish economy in 1990 and some of its prospects for the current year.
COPYRIGHT 1991 Economic and Industrial Publications
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Copyright 1991 Gale, Cengage Learning. All rights reserved.

Article Details
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Author:Cillov, Halluk
Publication:Economic Review
Date:Aug 1, 1991
Words:1717
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