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Turkey’s Economy Under AKP

Turkey’s Economy Under AKPTurkey’s Economy Under AKP

Since the Turkish party, often known by its Turkish language acronym, the AKP,  came to power, following an election in late 2002, the economy has expanded by 68%, equivalent to an average annual growth rate of 4.5%, despite two bad years (2008-09) at the height of the global financial crisis.

That’s well short of China’s growth performance, but as Turkey is a more advanced emerging economy one wouldn’t expect it to grow as fast, BBC reported.

Perhaps a more appropriate comparison would be that Turkey’s growth was stronger than South Africa or Brazil managed in the same period. It’s about the same as Chile, often seen as something of a poster child for managing an emerging economy.

It’s worth recalling the circumstances in which the AKP came to power. It was in the aftermath of Turkey’s own financial crisis, which led to an IMF bailout.

Politically, Turkey has been dominated by the Justice and Development Party of the President, Recep Tayyip Erdogan, for more than a decade.

The party is likely to put in a strong performance again this time, but it faces significant challenges to its dominance.

One factor, among several, is the flagging performance of the country’s economy.

Less than two years ago, the President of the World Bank, Jim Yong Kim, said: “Turkey’s economic achievements are an inspiration for many other developing countries.”

Last year, however, the Turkish economy slowed. It grew 2.9%. The IMF’s forecast for this year is only slightly better. Unemployment has increased. It dipped below 8% three years ago. Now it’s more than 10%.

 Deficit

Turkey has a substantial deficit in its international trade. The most widely used measure is the current account, which covers trade in goods and services and some financial transfers.

In Turkey that was in the red to the extent of 5.7% of annual national income, or GDP, last year, down from close to 8% the year before.

It’s an issue because it has to be financed by funds from abroad. As long as foreign investors are prepared to lend to Turkish borrowers and buy their financial assets that kind of current account deficit is bearable.

But if foreign investors take fright, or simply feel they can make better returns elsewhere, the situation can turn ugly.

That was one of the features of the wave of emerging market financial crises that erupted in Thailand 1997 and which later hit Turkey, leading to the IMF bailout two years later.

In an assessment of the Turkish economy in late 2014 the IMF said “capital flow reversal remains the main risk”. The report continued: “A sharp decrease in inflows would… lead to a recession.”

Financialtribune.com