Economists discuss milestone of Turkey's market economy

Economists discuss milestone of Turkey's market economy

Tuesday, January 25, 2011

ISTANBUL - Hürriyet Daily News
A decision made on Jan. 24, 1980, that marked Turkey’s shift from “mixed capitalism" to a free market economy is still generating discussion among economists and businessmen on its 31st anniversary.

Turkey tapped into neo-liberal economic policies with the Jan. 24 decision, Labor Economics Professor Özgür Müftüoğlu from Marmara University told Hürriyet Daily News & Economic Review in a recent interview. “The decision paved the country’s way to a higher competitiveness,” he said. “Turkey took its part in the globalization process with these decisions.”

In 1979, Prime Minister Süleyman Demirel delegated Prime Ministry Undersecretary Turgut Özal, a later prime minister and president, to prepare a program of economic and financial measures to integrate the country with the western world less than nine months before a military coup that deeply affected the country’s future.

The program, announced Jan. 24, 1980, mainly included a 32.7 percent devaluation of the Turkish Lira, shrinking the state’s role in the economy, lifting or reducing support of the agricultural sector, promoting foreign investment and providing importers major tax releases.

Turkey’s foreign trade volume was $7.33 billion in 1979, according to data from the Turkish Statistical Institute, or TurkStat, while the proportion of imports covered by exports was 44.6 percent.

In 2009, the country’s foreign trade volume rose to $243.07 billion and the proportion of imports covered by exports increased to 72.5 percent.

On Sept. 12, 1980, generals led by Chief of General Staff Gen. Kenan Evren, along with the entire Turkish army, intervened in the tense political situation in a bid to put an end to the “violence and terror” that had erupted between the political left and right.

“It was not easy to make the decisions before the 1980 [coup,] as most of the labor unions were much more powerful than today,” said Müftüoğlu. “The government struggled to implement the decision due to the strong labor unions. But with the Turkish army’s intervention on Sept. 12, 1980, the unions lost their power and the decisions finally came into practice.”

Economist Ertuğ Yaşar agreed with Müftüoğlu on the impacts of the government’s program, saying that the Jan. 24 decisions introduced radical changes in the economic outlook of Turkey. “It can well be considered a turning point for the country. It accelerated the competitiveness of the country and formed the proper finance and banking sector,” Yaşar told the Daily News.

“When Prime Minister Süleyman Demirel approved these decisions many criticized his actions harshly.”

Mütfüoğlu also harshly criticized the decisions. “Looking at the period after the decisions, Turkey’s black market activity rose sharply and public expenditures fell rapidly, for the sake of encouraging the private sector,” he told the Daily News.

“We could also see that the Jan. 24 decisions meant the end of social state, or welfare state, policies of subsequent Turkish governments.”

Refik Duran, former head of the Turkish Confederation of Employers' Unions, or TİSK, told Turkish daily newspapers after the announcement of the decisions that the organization was content with the move. “Until today, it was always the laborers who were happy [with the government’s move]. Now it is our turn.”

Tuğrul Kutadgobilik, current chairman of the employers’ union, told the Daily News in a written statement Tuesday that the 31-year-old decision was crucial, since it launched the integration of the Turkish economy to the modern world economy.

“At the beginning of 1980, the Turkish economy was incapable of producing and consuming. With the Jan. 24 decision, local industry, which was targeting replacing imported goods only, headed towards [a structure that] to promote exports,” he said, adding that a particularly crucial item in the program was easing capital movements.

“The decisions introduced the conception of productivity to the industrialists and provided consumers with the will to make a choice.”

“In a period when the foreign trade deficit still raises problems, the Jan 24 decision continues to remind us of the importance of an exports-focused growth model,” he said.

Turkey’s foreign trade deficit is estimated to stand around $70 billion in 2010, according official figures.

Earlier this month, Turkish State Minister Zafer Çağlayan, a strong supporter of devaluation of the lira in an attempt to raise exports, expressed similar ideas.

The export-focused growth strategy in the 1980s altered earlier industrial policies that targeted the domestic market to replace imported goods, Çağlayan told Anatolia news agency.

“These policies underlie the recent boost in exports, as the country is experiencing an even more serious restructuring,” he said.

Müftüoğlu, however, said: “Turkey certainly now has booming industries and remain a promising global actor. But we should realize what Turkey has lost during this period. While industries grew working conditions worsened.”

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Gökhan Kurtaran from Istanbul contributed to this report