The Turkish Economy : Challenges and Difficulties Essay example

The Turkish Economy : Challenges and Difficulties Essay example

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Political Stability:
Due to the economic crisis, the AKP, which was led by Erdogan, won the elections of Nov’02. The government took various measures to improve the financial environment. A new Law on FDI reduced the level of bureaucracy for international companies and resulted in a significant foreign capital inflow into the country. There were other important reforms like large profit tax cut and tax legislation simplification. Privatization of state enterprises was done. Hence the AKP received a lot of goodwill in Turkey and in foreign countries. The financial reforms taken by the AKP helped the country achieve greater macroeconomic stability and high levels of growth in the following years. Between 2002 and 2007, the economy on an average grew by 6.7%. The economy also recovered very quickly during the global crisis in ‘09. Because of stringent fiscal policy and high growth rates, the government debt started to decline. Inflation reached to single digits in ‘04, from over 80% during the 90s.

Restructuring of the Financial Sector:
In Dec’00, after the crises in late November, series of meetings were held between the Turkish authorities and foreign banks, and the major foreign banks expressed their commitment to maintain exposure to countries banks and cos., by giving the trade and interbank related credit lines. These commitments came along with the calming effect of the IMF bailout package and to keep the external funding base for Turkish banks stable. But these commitments ended in Feb’01, when turmoil on the financial markets started again.
As soon as the crisis erupted, significant reform and policy measures were taken by the government. In May’01, the Banking Regulation and Supervision Agency started a comprehensive restr...

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...ecent years. These reforms helped draw in more than $50 billion in foreign direct investment during 2004–07, more than double the total inflows of the preceding 20 years.
Notwithstanding the enormous strides that have been made, Turkey still faces significant economic challenges. It relies on foreign investors to finance its large current account deficit, its foreign exchange reserve position is less strong than many of its peers, and its public debt burden is still comparatively large. Fiscal and financial consolidation will therefore need to continue in the years ahead. Persistently high unemployment is vulnerability. While its causes are unquestionably structural in nature, structural remedies to facilitate faster job creation may prove politically difficult, and governments will need to resist pressures to resort to expansionary fiscal measures as a palliative.

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