[OPE] Mustafa SONMEZ: How Will the Global Economic Crisis Affect Turkey?

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How Will the Global Economic Crisis Affect Turkey?

Economist Sonmez's report prepared for Petrol-Is
studies how the foreign capital has affected growth potential, the
disadvantage brought about by the current account deficit in the face
of global crisis and the increasing inequalities.

Bia news center

21-04-2008

    Mustafa SONMEZ

    Economist Mustafa Sonmez, in his
research prepared for the Union of Petroleum Chemical and Rubber Workers of
Turkey (Petrol-Is) analyses how the 2008 global crisis will affect Turkey. The
research, made up of nine sections, explains how the growth process, which
begun in 2002, has come to a halt and talks about the weaknesses of this growth
process. 

The research also comments on how a likely
crisis can be overcome
with the least possible damage. Following is a summary evaluation of the
research: 

Halt in growth 

The growth of the Turkish economy since
2002, has come to a halt irrespective of the foreign turmoil, due to a series
of weaknesses. It can be
said that the large foreign capital inflow does not adequately increase the
capital accumulation and the growth potential. 

Current account deficit the weak chain 

The current account deficit is the most
important factor that will determine the extent of the damage to the Turkish
economy the global crisis will have. The current account deficit reached 38
billion dollars at the end of the year 2007 due to the rapidly growing foreign
trade deficit. The deficit is approximately 8 percent of the 2007 national
income. 

The assets of foreigners as big as
national income 

Turkey’s growth, which accelerated in the
2000s was, to a large extent, due to an inflow of foreign capital. This
increased dependence on owners of foreign capital. The size of the assets of
foreigners has reached Turkey’s national income. 

Inequalities on the budget growing 

23 percent of the 34 percent direct tax
share from the indirect tax, is income tax. However, taxes retained from
wage-earners predominantly make up this type of tax. The corporation tax paid
by banks and companies, which get the largest share from total income, remained
at 9 percent within the total tax income in 2007. 

Privatization as a tool to settle
budget deficits

The amount transferred from privatizations
to the budget was one percent of the total public revenue in 2004, two percent
in 2005, 4.5 percent in 2006 and 4 percent in 2007. 

Real inflation 20 percent 

Turkey failed to meet its inflation target
of 4 percent in 2007. Consumer price inflation reached 8,7 at the end of the
year. After this fiasco, it seems very unlikely that Turkey will meet its
inflation target of 4 percent in 2008. The 2008 global crisis will probably
reinforce the rise in inflation. The inflation experienced especially by lower
and middle class groups points at a totally different reality. 

Real unemployment rate 20 percent 

During the years 2002-2006 when the
economy grew 7.3 percent annually in real terms, total employment increased on
average 0.7 percent annually. 

The employment rate in November 2006 was
21 million 235 thousand. It went down to 20 million 867 thousand in November 2007. In other words, in
2007, when there was a growth of 4,5-5 percent, the employment rate went down
1.7 percent instead of increasing. If we were to take into consideration the
labour force, which the Turkish Statistical Institute does not specify as
labour force due to a disagreement over definition, the formal employment
number would be 25 million 267 thousand, the accession rate to labour force
would be 51 percent; and the formal number of those unemployed would be 4
million 400 thousand. 

The income gap widening 

In 2007, exports reached 107 billion dollars.
The greatest advantage over foreign markets was low salaries. This was achieved
through disciplining large unemployed masses with hunger, and through the
brutal exploitation of labour. The fact that the state’s taxation and
expenditure policies are to the disadvantage of the lower and middle classes,
reinforced the inequality of the distribution of income. 

Regional disparities and measures for the
southeast problem

The inequality between the east and west
of Turkey has lead to very serious social and political problems, as well as
increasing internal migration and rendering large cities unbearable. The
Kurdish population feels like “the other” and their sense of belonging is
damaged due to the fact that especially the East and Southeast Anatolia Region
do not benefit from development. (MS/GG/EA/EÜ)

 ----------------------
Doğan Göçmen
Author of The Adam Smith Problem:
Reconciling Human Nature and Society in
The Theory of Moral Sentiments and Wealth of Nations,
I. B. Tauris, London&New York 2007

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