Countrys Analysis of Turkey - Term Paper Example

Country’s Analysis of Turkey I. Country Overview The economic system in the republic of Turkey can be ified as either capitalist or communist. This is solely dependant on the how the country’s system of economy is managed. For instance, the Turkish government does encourage the citizens to explore investing in the market with the aim of making profit; this explains the capitalism part of the economy (Kinzer 91). On the other hand, the same government restricts operating some businesses they perceived vital and critical to the economy. This includes lucrative companies and banking sector, this explains the socialist part of the economy. In one word reference to the Turkish economy one can refer to it as a socialist economy or a mixed one. The Turkish government employed the pursuance of etatism as a way of connecting capitalism and socialism (Kinzer 142). The government identifies some of the critical businesses to be left in the hand of private owner and venture into them as the service or products providers. Considering that turkey is developed or undeveloped may be very complex, this is because the country is divided into two in terms of development. Therefore making reference to the whole country might no be accurate. The western part of the country is ten folds as developed as south eastern part of the country which is dominated by the Kurds. Despite of all these, one can still refer to Turkey as a special developing country. In terms of the economy, the Turkish economy according to IMF is an emerging market due to the rapid opportunities that blossoms in the economy with the private sector rapidly developing. The country’s GDP is $1.116 Trillion by 2010; this comes with a whooping GDP growth rate of +9.0% in the same year (OI?nisI, Ziya, and Barry 133). The country’ GDP per capita was in the same year $10,106 (nominal) and 15,340 being ppp. Inflation in the country is % 10.43 (OI?nisI, Ziya, and Barry 144). The political system in the republic of Turkey takes the framework of a representative democracy and is parliamentary based. The country embraces multi-party system and the head of the government is the country’s prime minister while the state is headed by the government. The powers in the country are clearly separated with council of the ministers exercising the executive powers and the Grand National Assembly of Turkey is vested with enactment of legislations. The electoral calendar in the country has a cycle of 5 years and is strictly based on universal suffrage. The current population in Turkey is about 7o million with the projection having it that by 2025, the population of the country will be about 90 million (OI?nisI, Ziya, and Barry 176). Of the population, majority of them are young with only about 6 % of the population constituting those of 65 years and above. The country has enormous labor force estimated to be about 25.64 million within the country and about another 1.2 million working abroad (UI?nay 156). The official language in the country is Turkish; well over 90% of the 71.1 million citizens of the country are well versed with the language. Other forms of language that exist include Kurdish, attracting about 6%, Arabic is also found in the country will the loyal of about 1.2%. Circassian is also spoken by about 0.09% (UI?nay 186). The main religion in turkey that attracts close to 77% of the population is the Islamic; the remaining percentage is unequally shared with the other faiths. In turkey the average education attainment is the high school with substantial number of students attending the 167 public universities in the country, majority of the students attends the public schools with the proportion standing at 95% (Financial Times Business 23). At primary level, almost all the student enrolls and the percentage attendance is almost 100%. This number transcends to high school where about 1.5 million high school student graduate annually from high school to the tertiary collages. Family income on the other hand is about 42 according to the 2003 Gini index (Financial Times Business 27). The natural resources distribution in turkey is quite mavellous as it can be considered one of the countries that are naturally well endowed with the natural resources that can be harnessed to benefit the country. They include mercury, limestone, magnesite, perlite, hydropower, feldspar, celestite, borate, coal, iron ore, copper, chromium, antimony, and gold (Financial Times Business 15). From this list it can be appreciated that the country has avalanche of natural resources that can enable them to achieve rapid development and make the economy blossoms. Turkey has also invested in the industries and the government owns most of these industries. The Turkish government also promotes investment in the country to aid boost the economy. The development of industries in Turkey is accelerated by the adequate presence of natural resources in the country and the huge domestic and foreign markets (Financial Times Business 33). The main flourishing industries in turkey for that matter include textile, petroleum, steel, mining, food processing, lumber, pap, steel, construction, electronics, tourism, and autos (Financial Times Business 42). II. Turkish current economic and political situation Turkey is one of the countries found in the Western Europe; it is a young and growing economy with a population of over 70 million people. The population base is the driver behind the massive economic growth recorded in the past. The US department of commerce in its recent research findings identified turkey to be among the top ten most promising economies among the growing world economies. This is backed by the World Bank study report, which also mentions turkey as one the economies yet to join the top ten tier economies of the world. Turkey after radical transformations and structural reforms of the 1980s adopted and acts on the liberal economic policy that has largely opened and modernized the economy to the rest of the world for business. Moreover, the political situation of the country also adopts the liberal policy (Banks, Arthur, Thomas, and William 266). The economic reforms were composed of the following aims and objectives; they were aimed at lowering government regulation, establishment of a more flexed exchange rate policy, encouraging FDI programs, increasing exportation, reducing the regulations of the financial markets and privatization of state owned economic enterprises among others. The above components became a subject of reforms since they had been identified as the obstacles towards economic and political well functioning. Thus the political and economic state of the Turkey takes the below course as at current (LaGro, 156). Economic state of turkey In the recent past since turkey attained a shift in its economic and political operations by 2001, the country has witnessed constant, consistent and uninterrupted growth. The inferences are indicators for use to comfortably pronounce Turkey as a stable economy. The economic stability of turkey is closely linked, and highly depends on the political stability of the AKP party. The stability and growth has been achieved due to the continued implementation of economic reforms that makes it one of the members of the European Union. The GDP of Turkey has grown from 160000 million Euros in the year 2001 to over 600000 million Euros of today with a constant GDP growth rate from that of -7.5% in 2001 to the most recent of 14.13%. Turkey is the through way through which gas and oil moves across Middle East and Europe. Through the rate and risk of inflation, which was, an extreme problem in turkey remains a slight problem with the government struggling to control the rates. The rate at which then population experiences unemployment remains a bit high with the recent records placing it at 9.9% in the year 2006. Turkey finances a large fraction of its budget through deficit financing making it current account deficits to remain high at over -50000 million Euros. Turkish government since the inception of the liberal economic policy has struggled to upgrade its infrastructure to meet the EU standards with great progress being realized in its road, air and water transportation systems (Bac, Meltem, and Yannis 213). Rail networks in the country have remained a major concern with the relevant authority, Turkish State Railway (TCDD) having much task to bring reforms to the sector. Research by world bank established that road transport remains to be the mode with high demand hence the government of turkey continues to allocate he budget for the construction and maintenance of roads and airports. The location and infrastructural design of turkey has facilitated it to be accorded the function of transiting oil and gas across the East and Europe. It is the connector of Europe and major world oil and gas suppliers (Findley 184). Turkey though does not have natural oil deposits for themselves; therefore, their consumption is mainly from imports. The country has oil reserves of over 400 million barrels and gas reserves of 9.147 billion cubic meters. The country consumes oil at the rate of 715000 barrels each day while gas is at over 30 billion cubic meters per day. The country’s economy is composed as a leading producing nation of agricultural commodities, transportation equipment like vehicles and ships, construction materials. The country highly favors privatization of its enterprises with government remaining a major player in sectors such as industry, transport and communication, banking (Bac, Meltem, and Yannis, 295). Turkey’s political state The most recent development in the politics of turkey is the formation of the Justice and Development Party (“AK Party”). This part came to power in 2002 under the; leadership of Recep. The country is lead by both a president and a prime minister. Politics is the great determinant of the economic success of Turkey; it therefore states that with political instability economic success is threatened as well. Stability in turkey largely cropped in with the advent of the AKP party, which formed policies that harshly daunted corruption (Anderson 146). The government has achieved so much in its efforts to uproot the vice with the latest corruption perception index(CPI) placed at 4.1 in a scale of 0-10, the country is ranked number 64 out of the 180 countries surveyed and ranked. The AK party government has facilitated growth of the country by encouraging healthy partnerships most so busted relationships with the Muslim brothers. Through such partnerships, turkey has the sole objective of garnering control of the region and inserts its impact to extend their political, economic and social interests. The political state in position has policies to enable it revitalize their lost ties such as those with Syria and Iran in the Middle East. The ties created by Turkey are unique since they are made with countries in the east even after the advent of polarization (Anderson 277). II. Macroeconomic Analysis Economies are faced with various macroeconomic challenges that have to be managed to ensure that the impacts are mitigated or eradicated. Turkey is not an exception and has to formulate and implement policies that could enable it prosper economically. An analysis into the various macroeconomic indicators must therefore be analyzed to reveal the root causes of the problems and to arrive at the effective macroeconomic solutions. The main macroeconomic problems that face turkey include unemployment, inflation rates, growth in the gross domestic products, managing of the budget and management of the currency rates and foreign exchange earnings. Exploit a trend analysis to compare the performance of the economy over time. In this analysis, graphs, charts, and tables. A look at the gross domestic product of turkey reveals that Turkey recorded significant growth in the level of their output. Between 2000 and 2010, the growth in GDP was stable and continuous except for the period of 2008 when the GDP declined because of the global economic recession that hit the world and affected adversely on turkey. A forecast in the expected economic performance shows that the GDP of Turkey will record significant rise from 2010 to 2015 (Karatas, Cevat, and Hiroshi 162). Turkey‘s economy is complex and dynamic with a mixture of traditional; agriculture industry, commerce, fisheries and modern industry. The growth in the GDP during the period is attributed to the expansion of the private sector. The government continued role in ensuring stability in the banking industry, financial institutions, communication, and transport further propelled the growth of the economy. Moreover, the growth of the automotive industry increased the revenue of the country despite the stiff competition from the international markets and developed economies. The textile and clothing industry is the largest sector and it constitutes one third of the employment opportunities. The sector has faced stringent competition from the global supply but has remained steadfast in contributing to the economic growth. Regarding the price levels, Turkey recorded a double digit inflation level in 2012, a rate that was not anticipated the central bank governor declared that the inflation was a problem in Turkey. The 10.45% inflation rate in 201 was the highest since 2008. Further still, the company expects inflation to remain a problem in 2012. The changes in exchange rate contributed to 5% rise in consumer prices, taxes rise increased the level of inflation by 1.6 as per the central bank data. The Turkish Lira depreciated significantly forcing the central bank to tighten the monetary policies in a bid to have the high inflation level reversed. Because of the hike in taxes, the cost of productions increased making the prices of the commodities to rise by about 13.3% (Karatas, Cevat, and Hiroshi 189). From the above graph, it is clear that the inflation rate of Turkey has been experiencing continuous fluctuations with the inflation rate being a double digit in the first quarter of 2012. The central bank policies must be formulated in to help mitigate the rising inflation. One way of realizing this is through increasing the level of interest’s rates and reducing the level of government expenditure and the amount of disposable income available with the public. Unemployment rate Turkeys’ unemployment rate averaged at 1.14% recording a high of 16.1 in 2009 February and a low of 8.8% in 2006 may. The rate of unemployment in January 2012 was reported at 8.9% (Karatas, Cevat, and Hiroshi 211) . From the graph indicating Turkey unemployment rate, it can be that the unemployment rate has been on the decline from the year 2010 after the recession. This is because of the increase in the level of economic activities after the end of the 2008 recession. The increase in the government s[pending and growth in the size of the private sector led t the decrease in the rate of the unemployment. This is in line with the Philips curve that shows the negative relationship between inflation and the rate of employment. The graph below further shows Turkey consumer price index in the long rum Retrieved from Global- rates.com The inflation rates have been fluctuating depending on the prevailing economic conditions. Turkey parliament approved a budget of $189 billion in 2010. In this budget, the government aimed at reducing their deficit financing through the increment in the tax levels. The government of Turkey collected $156.2 billion from taxes. The amount of budget deficit was $ 33.1 billion. The 18.2% increase in taxes was financed from the new taxes or from increment in the current collection. This budget aimed at meeting 3.5% growth and reducing the inflation level to 5.3% in 2010. The global recession that began in US has significant impact on Turkish economy. With global trade and international economic interaction, economic performance in one region will spread to other regions. With the decline in the economic activities using the 2008crisis, the amount of foreign exchange earned by Turkey declined significantly hence reducing the current account balance. The recession led to the decline in Turkish exports. This further resulted into depreciation of the Turkish currency against the major economies. Since exports significantly contributed to Turkey’s GDP growth, a reduction in the level of exports translated into decline in the GDP growth rate. Moreover, the export prices of Turkey’s products fell more than the import prices. In addition, the level of unemployment in Turkey increased because of the reduced level of economic activities caused by the decline in demand. Production in an economy depends on the availability of market for the goods. With a decline in demand, investments would reduce hence making the level of unemployment rise. At the same time, the recession led to declining GDP because of the decline in the production level. Finally, the financial market of Turkey was also affected by the global economic recession, the number of stocks that were purchased declined because of the low returns on shareholders’ funds and the low performance across other financial markets. The decline in the stock prices made investors lose from the capital investments. With the high losses being recorded, panic spread across the stock exchanges making people withdraw their investments and further causing the prices to fall significantly. Turkey’s economy has not fully recovered from the economic recession of 2008. However, there has been a significant increase in the level of GDP as well as the reduction in the unemployment levels as reflected from the graphs of GDP and unemployment above. Various sectors of Turkey’s economy especially the Textile and clothing industry continues to realize low level of sales and revenue. The high level of inflation remains a major challenge for Turkey as the economy continues to recover from the recession. The government policies must therefore remain focused on determining the balance of the conflicting economic indicators. Turkey’s amount of foreign exchange trading has increased over time resulting into an increase in the level of earnings. With time, Turkey has to have new major trading partners like Russia, which surpassed the level of trade between Turkey and US. The leading trade partners are chins, France, Germany, Iran, Italy, Russia, US, UAE, Ukraine among many more. Turkey exported 46.3% to EU, 5.3% to Iraq, 4.1% to Russia, 2.9% to UAE and 2.7 to Iran. On the other side, Turkey imported 39.3% from EU, 11.7% from Russia, China (9.4%), USA 6.7% among others (Yeldan 32). The major products exported by Turkey include motor vehicles, textiles, agricultural; products, electronics and other home appliance. The large number of resources exported by Turkey enables it realize stable income from exports. Turkey and EU are linked by the custom union agreement and this promotes trade and economic partnership. EU enjoys the good relationship and EU is ranked a top import and exports whereas Turkey is considered number seven in the EU top imports and fifth in the case of exports. Turkey also enjoys free trade agreement with EFTA, former Yugoslavia republic, Tunisia, Croatia, Egypt, Serbia and Chile. Furthermore, Turkey entered into bilateral agreement with EU in order to increase trade levels and improve the economic relations. In conclusion, the performance of an economy over time should be analyzed to help in formulating policies that can help correct the macroeconomic problems and challenges. Turkey performance over time shows an economy that has been faced by cyclic economic challenges and therefore requires assiduous alteration of policies to help the economy record economic stability and growth. Economic challenges will forever remain and therefore economist will ever have the challenge of adjusting policies in order to protect the economy from falling. Works Cited Kinzer, Stephen. Crescent and star: Turkey between two worlds. New York: Farrar, Straus and Giroux, 2001. Print. OI?nisI§, Ziya, and Barry M. Rubin. The Turkish economy in crisis. London: Frank Cass, 2003. Print. Turkey's economy soars. London: Financial Times Business, 2005. Print. UI?nay, Sadik. Neoliberal globalization and institutional reform: the political economy of development and planning in Turkey. New York: Nova Science, 2006. Print. Anderson, Perry. The new old world. London: Verso, 2009. Print. Bac, Meltem, and Yannis A. Stivachtis. Turkey-European Union relations: dilemmas, opportunities, and constraints. Lanham, MD: Lexington Books, 2008. Print. Banks, Arthur S., Thomas Christian MuI?ller, and William Overstreet. Political handbook of the world: 2005-2006. Washington, D.C.: CQ Press, 2006. Print. Findley, Carter V.. Turkey, Islam, nationalism, and modernity: a history, 1789-2007. New Haven, CT: Yale University Press, 2010. Print. LaGro, Esra. Turkey and the European Union: Prospects for a difficult encounter.. New York: Palgrave Macmillan, 2007. Print. Karatas, Cevat, and Hiroshi Nagaba. A study of Turkey's economic growth, foreign investment and external trade relations. Tokyo: Institute of Developing Economies, 1988. Print. Yeldan, Erinc. Macroeconomics of growth and employment: the case of Turkey. Geneva: ILO, 2011. Print. Read More