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Western EuropeJanuary 5 2004

Turkey deserves recognition for hard-won success

Turkey has come a long way in achieving stability in the past year, a fact that recent events threaten to overshadow.
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Volatility has been the hallmark of the Turkish economy for the past two decades. Amid a series of weak coalition governments, the country lurched from crisis to crisis as successive prime ministers promised to bring inflation below 70% and to create stability and then failed to deliver. Then came the financial disaster of 2001 when the wheels really did come off, GNP shrank by 9.4% and Kemal Dervis was brought in from the World Bank to sort out the mess.

With the help of Mr Dervis and $31.5bn from the IMF since December 1999, Turkey’s financial sector and economy have been brought back on track but the elections of November 2002 have also proved a real turning point. The election of a single party, the Justice & Development Party (AK) and prime minister Recep Tayyip Erdogan have broken the mould in Turkish politics, confounded many critics and given the country an unusual taste of political stability.

Difficult year

But 2003 has not been an easy year for Turkey and the conflict in Iraq, issues in Cyprus and the recent Istanbul bombings have drawn attention away from the significant changes in the domestic arena. At the beginning of December 2003 Turkey had got inflation down to 18%-19%; interest rates were 28% instead of over 70% and the exchange rate was 1.45m lira to the dollar, instead of 1.665m lira as it stood a year ago. The stock exchange index was also over 16,000, compared to 10,000 a year earlier.

Make no mistake, Turkey has not become a model economy overnight. Many structural problems remain. But despite the hubbub of Iraq and terrorist bombings it should not be forgotten that Turkey’s popular Islamist government has followed IMF guidelines and produced a list of positive economic achievements that have eluded previous governments for years.

Getting inflation below 20%, with the intention of achieving single digits by 2006, has helped to reshape the economy and the banking sector. Banks, for example, can now concentrate on satisfying demand for real banking, such as consumer finance, rather than traditional lending to the government. With GDP growth put at over 5% in 2003, the strengthening economic fundamentals and new political order have provided the country with an enormous boost. This success should not be overshadowed by turmoil in the region.

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Read more about:  Analysis & opinion , Western Europe , Turkey