Economy
GDP: (2001) $144.4 billion; (2002) $181.8 billion.
Annual real GDP growth rate: (2001) (-) 9.5%; (2002) (+)7.8%.
GNP per capita: (2001) $2,107; (2002) $2,611.
Annual inflation rate (CPI, 2001): 68.5%; (2002) 29.7%.
Natural resources: Coal, chromium, mercury, copper, boron, oil, gold.
Agriculture (11.5% of GNP): Major cash crops--cotton, sugar beets, hazelnuts, wheat, barley, and tobacco. Provides more than 40% of jobs, 6% of exports.
Industry (28.8% of GNP): Major growth sector, types--automative, electronics, food processing, textiles, basic metals, chemicals, and petrochemicals.
Trade: Exports (merchandise, 2001)--$31.3 billion; (2002) $35.1 billion. Imports (merchandise, 2001)--$48.5 billion: textiles and apparel, iron and steel, electronics, tobacco, and motor vehicles; (2001) $39.5 billion: petroleum, machinery, motor vehicles, electronics, iron and steel, plastics. Major partners--Germany, U.S., Italy, France, Russian Federation Italy, Japan, Netherlands, U.K.

Economy of Turkey
Turkey began a series of reforms in the 1980s designed to shift the economy from a statist, insulated system to a more private-sector, market-based model. The reforms spurred solid growth, but growth that has been punctuated by sharp recessions and financial crises in 1994, 1999, and 2001. Turkey's failure to pursue additional reforms, combined with large and growing public sector deficits, resulted in high inflation, increasing macroeconomic volatility, and a weak banking sector.

The Ecevit government, in power from 1999 through 2002, restarted structural reforms in line with ongoing economic programs under the standby agreements signed with the International Monetary Fund (IMF), including passage of social security reform, public finance reform, state banks reform, banking sector reform, increasing transparency in public sector, and also introduction of related legislation to liberalize telecom, and energy markets. Under the IMF program, the government also sought to use exchange rate policies to curb inflation.

By late 2000, a growing current account deficit, the weak banking system, and growing concern over the failure to implement needed structural reforms resulted in a liquidity crisis that led to a revised IMF program. In February 2001, a public dispute between the president and prime minister triggered a run on the lira and a dramatic increase in interest rates. The result was rapid inflation, a severe banking crisis, a massive rise in domestic public debt, and a deep economic downturn (GNP fell 9.5% in 2001). The government was forced to float the lira and adopt a more ambitious economic reform program, including a very tight fiscal policy, enhanced structural reforms, and unprecedented levels of IMF lending.

Large IMF loans--tied to implementation of ambitious economic reforms--enabled Turkey to stabilize interest rates and the currency and to meet its debt obligations. In 2002 and 2003, the reforms began to show results. With the exception of a period of market jitters in the run-up to the Iraq war, inflation and interest rates have fallen significantly, the currency has stabilized, and confidence has begun to return. Nonetheless, the economy remains very fragile, and continued implementation of reforms is essential to sustain growth and stability.

Turkey has a number of bilateral investment and tax treaties, including with the United States, that guarantee free repatriation of capital in convertible currencies and eliminate double taxation. Nonetheless, foreign direct investment has totaled only $15.7 billion as of November 2002, a modest sum reflecting investor concerns about political and macroeconomic uncertainty, burdensome regulation, and a large state role in the economy.

Turkey seeks to improve its investment climate through administrative streamlining and has taken steps to improve its investment climate through administrative streamlining, an end to foreign investment screening, and strengthened intellectual property legislation. However, a number of disputes involving foreign investors in Turkey and certain policies, such as high taxation of cola products and continuing gaps in the intellectual property regime, inhibit investment. The Turkish privatization board is in the process of privatizing a series of state-owned companies, including the state alcohol and tobacco company and the oil refining parastatal. In 2004, the Privatization Board is scheduled to privatize the telephone company and some of the state-owned banks. The government also has committed in the World Trade Organization to liberalize the telecommunications sector at the beginning of 2004.

Inflation and Monetary Policy. Turkey's principal economic problems remains inflation and public sector indebtedness. Annual consumer price inflation averaged around 80% in the 1990s and nearly 50% in 2000 through 2002. Wholesale price inflation has been at comparable levels. In 2003, however, there are signs that Turkey's Central Bank is finally succeeding in controlling inflationary pressures: as of September 30, 2003, the previous 12-month increase in the CPI had fallen to 23%.

Turkey's current economic reform program has had two main goals--conquering the persistent high inflation of 1990s and the associated macroeconomic instability, and reducing public debt to sustainable levels. Following the 2000-01 crisis, which saw the collapse of the crawling peg under the previous International Monetary Fund (IMF) program, a new 3-year standby agreement was approved by the IMF in February 2002. It focused on combating inflation through a floating foreign exchange regime and tight monetary policy conducted by the newly independent Central Bank. The program also requires fiscal discipline leading to a 6.5% primary surplus target in 2003 and continued structural reforms. The program began to show its results with lower inflation, resurgent growth and, at least, partial success in maintaining fiscal discipline. GDP growth reached 7.8% in 2002 and is likely to reach 5% in 2003, while the government is likely to, at least, come close to its full-year primary surplus target of 6.5% of GDP. The public debt-to-GNP ratio, after shooting up to 95% in the crisis year of 2001, fell to 79.8% in 2002 and is expected to fall further by year-end 2003.

Principal Growth Sectors Energy. Installed energy generation capacity in Turkey reached 28,332.4 MW as of the end of 2001. Fossil fuels account for 59% of the total installed capacity (16,623 MW) and hydro, geothermal, and wind account for the remaining 41% (11,7093 MW). Total electricity consumption reached 126.9 billion kWh at the end of 2001. The growth in electricity generation has remained below electricity demand until recently, which made Turkey a net importer of electricity since 1997. In 2001, Turkey imported 4.6 billion kWh electricity and exported 0.4 billion kWh. Demand growth has slowed since the 2001 economic crisis but is expected to outpace electricity generation in 2008 unless new facilities become operational.

The Government of Turkey has taken major steps to liberalize its energy sector since March 2001, when the Electricity Market Law entered into effect. The government appointed members to the Energy Market Regulatory Authority (EMRA) in November 2001. EMRA is responsible for regulating the electricity market, which will function on the basis of a pool system with multiple buyers and suppliers of electricity. EMRA foresees operation of the electricity market as of September 2002 and the natural gas market as of November 2002. Although EMRA has issued the secondary legislation and issued some electricity distribution licenses, further government action is necessary to introduce cost-reflective prices in the electricity market and to speed-up the privatization of the energy distribution network.

Telecommunications. Parliament enacted legislation separating telecommunications policy and regulatory functions in January 2000, by establishing an independent regulatory body, the Telecommunication Authority. The Authority is responsible for issuing licenses, supervising operators, and taking necessary technical measures against violations of the rules. Most regulatory functions of the Transport Ministry were transferred to the Authority. The government also decided to give Turk Telekom commercial status and to end its monopoly in fixed telephone lines by December 2003. It changed this plan in May 2001 and announced full privatization of Turk Telekom, with the exception of a "golden share" for the government to protect security and public interest concerns. The new law allows up to 45% foreign ownership in Turk Telekom. The government is expected to announce a new privatization model for Turk Telekom in October 2003.

Environment. With the establishment of a Ministry of Environment in 1991, environmental issues have taken on increased prominence. There have been dramatic improvements in certain areas, particularly air pollution in Istanbul and Ankara. However, Turkey faces new challenges as it strives to integrate environmental concerns into economic policy decisions. Turkey must raise its environmental standards to the level of the EU; implement and enforce stricter environmental policies; and modernize and expand the environmental infrastructure, such as projects to better handle sewage and solid waste.

Transport. The Turkish Government gives a special priority to major infrastructure projects, especially in the transport sector. The government is planning the construction of new airports, ports, and highways. The government will realize the majority of these projects by utilizing the build-operate-transfer (BOT) model.

Textiles. The textile sector is Turkey's largest manufacturing industry and its largest export sector. The removal of EU quotas on textile and apparel imports--part of the customs union--has improved growth prospects. The global phase-out of textile quotas in 2005 will provide increased opportunities, albeit with increased competition from other suppliers, in the U.S. and other markets. Other principal growth sectors are defense equipment, tourism infrastructure, building products, automobiles and automotive parts, and electronics.
source: http://www.state.gov