Strengthening RELATIONS
DEİK will continue to create new and strengthen existing ties around the world through various initiatives and events.
our branded products, such as our fashion brands in the textile sector, as well as white goods, glassware, souvenirs, and small appliances.
Outside of the immediate region, what targets has DEİK set for opening new trade relations with developing nations?
the nation’s fragile economy and rebuild confidence in the banking sector following the 2018 currency crisis. On April 10, Treasury and Finance Minister Berat Albayrak introduced a sweeping economic reform package that will strengthen state banks’ capital position, prioritize loans for export and other high-performing sectors, and lower corporate and individual taxes.
“We continue to uphold our fiscal discipline after the [March 2019 municipal] elections,” Albayrak said during a speech on April 10 while unveiling the reform plan. “We issued tax incentives to some sectors. We will take steps that will ensure fairer taxation on higher income groups that will have minimum effect on inflation.”
Outlining the long-awaited reform package, Albayrak said TRY28 billion in debt securities would be injected into state banks to boost capital. He added private banks might receive similar government aid in the future if necessary, but noted that dividend and bonus payments would be limited during the rebalancing period.
The move seeks to counter the weight posed by a large number of non-performing loans held by banks, which are expected to double in 2019. Albayrak said some problematic loans would be transferred to off-balance sheet funds of local banks and international investors, and two funds focusing on energy and real estate would be created.
Albayrak emphasized government loans would prioritize strategic sectors such as manufacturing, exports, and value-added production. Turkish exports remain competitive following the devaluation of the lira, which has narrowed the foreign trade gap by 63.6%, from USD40.8 billion in 1H2018 to USD14.85 billion in 1H2019. By injecting support into local production, Albayrak seeks to bolster Turkey’s exports, nearly half of which is directed toward EU trading partners. In 1H2019, trade between Turkey and the EU amounted to USD41.4 billion.
OFFICIALS ARE ACTING TO STABILIZE
In addition, a new government tax structure will be implanted to reduce exemptions and gradually lower corporate taxes, while combating black market activity and modifying taxes on high-income earners to create a more balanced tax scheme. Albayrak also said he plans to integrate the nation’s severance pay fund with its private retirement insurance fund.
“The new individual pension system will be based on citizens’ income level; in five years, we expect the funds in the new retirement reserve to exceed 10% of Turkey’s GDP,” he said during the April 10 speech.
While presenting the reform package, Albayrak underscored that previous budget reforms had already resulted in savings of TRY44 billion. That figure is set to cross TRY76 billion on the back of new measures. International investors observed the presentation closely, seeking assurance the central bank would move swiftly to address ongoing economic turbulence.
Following the currency crisis in August 2018, the economy suffered its worst quarterly contraction in nearly a decade, in which inflation rose as high as 25%, leaving enterprises and banks saddled with high levels of foreign-currency debt. The lira, which lost 30% of its value against the dollar in 2018 and remained volatile, stabilized in the spring of 2019 as analysts weighed the risk of higher deficits and potential government interventions.
Initial response to the reform package was positive, following which bank stocks rallied, with the majority state-owned Halkbank leading the pack with a 2% rise. The government’s sustained efforts continue to bode well for the overall economy, but most importantly, they have started to bear fruit for the average citizen, as according to Turkish Statistical Institute, YoY inflation has dropped steadily over the summer period, from 18.71% in May 2018 to 15.72% in June 2019. ✖
Berat Albayrak
MINISTER OF TREASURY AND FINANCE
DESPITE VARIOUS SHIFTS AND CHANGES
over the centuries, the core functions of diplomacy persist in the 21st century. In places where war, coups, failing states, suffering, oppression, and bloodshed are taking place, Turkish diplomats perform their duties uninterrupted and are devoted to protecting Turkish interests. They are in constant negotiations in capitals, international organizations, and the tables of various processes. We have developed comprehensive consultations and cooperation methods including bilateral, trilateral, quadrilateral, and other sorts of multilateral mechanisms. We will make more use of those not only on political but also technical levels. We continue to make a substantial contribution to regional and global stability and order through diplomacy. Turkey is the leading country in mediation initiatives in three different international organizations. We will devote even greater attention to resolving disputes and frozen conflicts in the upcoming period. Turkish diplomacy is also highly active in the development of our foreign economic and commercial relations. The amount of FDI, which was USD14.6 billion from 1984 to 2002, reached USD210 billion from 2003 to 2019. We concluded or are in negotiations for free trade and preferential trade agreements with many countries. Turkey’s interests at home and abroad require working efficiently and in a focused manner. Our state and nation stand tall and strong as the guarantor of regional peace and prosperity.
AFTER A YEAR OF SIGNIFICANT REFORMS,
the government remains committed to an ambitious agenda of economic transformation. With no elections for the next four years, Turkey offers great investment opportunities. We acted swiftly upon assuming office to restore price stability and guide the economy toward a more sustainable growth path. The results of our intervention are encouraging—inflation is already lower than a year ago. The Central Bank continues to take measures independently to pursue its fight against inflation. In tandem we are working to contain food prices by supporting the optimization of supply chains. This is critical given food prices have been a nagging source of inflation since early 2010s. Following the structural transformation steps announced in April, certain policies have been implemented to improve the economic outlook in the near term as well as to increase the productivity and growth potential in the long term. Our goal is to achieve sustainable growth while addressing Turkey’s main source of fragility, the chronic current account deficit, which has been financed by short-term debt. Looking into the financial system, Turkish banks have capital adequacy ratios well above global benchmarks. We are also developing state-of-the-art macro prudential oversight capabilities to detect systemic risks to financial stability. *This first appeared on Euronews.
which contracted in 2H2018, started to recover at a modest pace in 2019. Both domestic and external demand contributed to the recovery in the first two quarters of the year. The main driver of domestic demand was private consumption, while investment demand remained weak due to tight financial conditions and elevated levels of financial volatility. On the external demand front, the contribution of net exports remained positive, also with the help of buoyant tourism demand. The composition of growth has a positive effect on the external balance. The current account balance, which posted a sharp improvement during the rebalancing process, is expected to remain favorable. Inflation has displayed a persistent downtrend since October 2018. Tight monetary policy stance has been instrumental in controlling inflation and inflation expectations. In order to steer inflation expectations in the right direction and contain risks to pricing behavior, we have strengthened the emphasis on the role of published inflation forecasts as intermediate targets. Accordingly, we have made an explicit commitment to keep the underlying trend of inflation close to the published projections for the next three years. Accordingly, actual inflation has mostly remained close to, or even below, the lower bound of the TCMB’s published projections since October 2018, which has improved forecast credibility.
ECONOMIC ACTIVITY,