The Economic Program

The Economic Program implemented after year 2001 crisis envisaged very comprehensive measures and yielded significant result. Many structural reforms regarding banking, telecommunication and energy sectors. As part of the banking reform launched in the early 2000's, the Banking Regulatory and Supervisory Authority was set up.

The functions of the Central Bank of the Republic of Turkey (CBRT) were enhanced and the CBRT was made independent in May 2001 and floating exchange rate regime was introduced. Age of coalition-governments was brought to an end in 2002 and on-party Government won the majority of the seats in the Parliament. EU accession was targeted by the Government as the policy of first priority. The economic authorities successfully worked in collaboration with international organisations such as IMF and World Bank. The functions of the Central Bank of Turkey were enhanced and the CBRT started implementing inflation targeting program.

As of 2006 formal inflation targeting was started and monetary conditionality was introduced for the CBRT.The economic authorities successfully worked in collaboration with international organisations such as the IMF and the World Bank.

The Reform Process

During the last several years, the Republic of Turkey has been going through a very comprehensive process of economic reform and restructuring. With the strong backing of a single party government, the Turkish economy has gained enormous momentum and endurance.

Turkey places a particular emphasis on structural reform efforts. Starting from the financial sector and with the accelerated privatization process, sweeping reforms including agriculture and social security, energy and telecommunication sectors have been successfully carried out. These are focused particularly on the reform of the public sector itself through measures in a number of topics ranging from public financial management to transparency and good governance.

Macro-economic indicators have been following a positive trend. Major objectives of the program, namely, decreasing the inflation to single digit numbers, providing a higher and more stable economic growth and realizing structural reforms have been achieved to a great extent.

The current economic program continues to deal with the root-causes of Turkey's underlying economic problems. The economic program focuses on restructuring the financial sector at large and removing the obstacles for private-sector-led growth.

With the strict implementation of the program, recovery has now resumed and the Turkish economy has become much more institutionalized. Economic agents are now more conscious of the importance of sustaining the program and the results it can deliver.

Economic Growth

Today, Turkey is the 17th largest economy in the world with a GNP of about USD 400 billion. As a matter of fact, Turkey has recorded a sustainable growth during the past 6 years. The growth rate was 6.1% in 2006. International Monetary Fund (IMF) predicts a growth of 5% in 2007 and 6% in 2008 respectively.

Interest rates, which are still high in comparison to most European countries, have been swiftly shrinking down to record low levels. It is also worth mentioning that instead of a policy of fiscal expansion and monetary loosening, growth has been driven mainly by the private sector.

Production Capacity

Productivity growth in the private manufacturing sector has been around 10% on average during the last three years. This has been very encouraging in terms of sustainable development and competitiveness of the Turkish economy. It is also noteworthy that industrial and durable goods now constitute the greater portion of the total production capacity of the Turkish economy.

The textile and clothes manufacturing sector accounts for nearly 10% of the country's gross domestic product and creates 21% of its job opportunities.


Economic Integration Schemes with International Organizations

Turkey has recently begun to extend its economic ties beyond the more familiar terrain. Turkey's vision for the 21st century is to achieve integration with Europe and become an economic power in its region. Convinced that a liberal international trade system based on the principles of free competition, non-discrimination and elimination of barriers to trade are in the interest of the international community, Turkey’s trade policies since the 1980’s have been consistent with this principled stand.

Being a member of the OECD, Turkey also became a founding member of the WTO in 1995 and established a Customs Union with the EU in 1996. Free Trade Agreements have also been signed with various countries. Turkey conducts most of its foreign trade with the EU and the OECD countries.

With the Customs Union, Turkey has lowered its rate of protection and as a result industrial goods have started to circulate freely between Turkey and the European Union. With respect to imports from the third countries, Turkey applies the Common Customs Tariff.

European Integration

Membership to the EU is a process, which has its roots back in the late 1950’s. It has been the main pillar of Turkish foreign policy, and consolidated over the years. Turkey was declared a candidate destined to become a full member in 1999 at Helsinki. Since then, Turkey has undergone a very comprehensive reform process geared at meeting the membership criteria as stipulated by the EU. Consequently, based on the recognition by the European Commission and the Council on 17 December 2004 to have met sufficiently the Copenhagen Criteria, Turkey started the accession negotiations on 3 October 2005.


However, economic integration between Turkey and the EU is even more advanced due to the Customs Union, which has been in force for almost a decade now. Turkey is the only country to have entered into a Customs Union with the EU prior to accession. The EU holds a big share in foreign investment in Turkey. It is also a major trade partner of the country.

Progress in the accession process accompanied by significant structural reforms in the Turkish economy will appeal to more foreign investors, which will reflect on the economic relations between Turkey and the EU positively.

In the last progress report released by the EU on November 2007, it is noted that, Turkey, as regards to economic criteria, can be regarded as a functioning market economy, as long as it firmly maintains its recent stabilisation and reform achievements. In spite of recent political setbacks, all macro economic indicators remain stable throughout the year.

Turkey’s economic contribution to the EU will not be limited only to its own economic potential but also encompass the strategic geography it is located in. Turkey is situated on a key location for the increasingly important energy, transportation, and communication networks that link the East to Europe. Aiming for leadership in foreign trade in its geography, Turkey has developed extensive trade relations with the Central Asian, Black Sea Economic Cooperation and the Economic Cooperation Organization countries. Turkey will thus be able to contribute both to the EU’s access to these markets and to the procurement of raw materials and inputs that are of vital importance for the European economy.

Source: Ministry of Foreign Affairs

(Last updated December 19, 2007 )