LONDON – The Turkish economy is set on a path of sustainable growth with the GDP growth rate projected to be just over 4 percent for 2012. An optimistic Turkish Deputy Prime Minister Ali Babacan acknowledged that although this figure is much lower than the growth rate of 9.2 percent in 2010 and 8.5 percent in 2011, the 4 percent or so projected growth rate of this year is going to be the highest of all European countries. “We believe it is more of a sustainable growth given the circumstances and given the risks,” he told Saudi Gazette. Babacan admitted that the Turkish economy was experiencing “the risk of overheating in 2011, and our current account deficit was increasing due to high consumption and low saving rates.” But thanks to the tough decisions taken during the height of the Turkish financial crisis in 2001, the country has been insulated from the worst effects of the impact of the global financial crisis and the eurozone debt crisis, to which the Turkish economy was susceptible because 40 percent of Turkish exports were directed toward the eurozone markets. “We tighten things during good times and have room for loosening during difficult times. So at the peak of our growth, when growth was at 9.2 percent, we started to take macro prudential measures, and monetary policy steps by our central bank to contain the current accounts deficit and also to keep inflation under control. And because of those steps that we have taken, the growth rate of this year is going to be probably about 4 percent or so.” The government of Prime Minister Recep Tayyip Erdogan may be currently pre-occupied with foreign policy issues especially pertaining to the deteriorating situation in neighboring Syria and the unprovoked Syrian mortar attack on a Turkish border village, but according to Babacan, the government's domestic reform process will continue unabated. The confidence exuded by the Erdogan goverrnment, which is one of the most successful in recent Turkish history, is implicit in the contention by Turkey that both Europe and Arab Spring countries can not only learn from its experience but use Turkey as a model. “Over the last one year,” said Babacan, “there were important steps taken by European authorities like fiscal compacts, like six pack, like a stronger firewall, programs for Portugal, Greece, Ireland or newly announced programs for Spain and Italy. But implementation is going to be the key word to follow. In such an integrated economy and financial structure of the world nowadays, no country is immune from any serious development in the global economy or global financial system. Especially within the framework of G20, we as Turkey are really active to make sure that better and better policies are implemented, and we have the legitimacy of criticizing and also telling our views about other countries.” Turkey, he added, has become an important source of inspiration for many countries in the MENA neighborhood. More importantly, the Erdogan government wants to prove to the world “that Islam and democracy can coexist and function in a proper way”, an ambition which Turgut Ozal the former Premier and President of Turkey, first championed way back in the 1980s. In this respect Ankara sees important synergies with Malaysia, widely regarded as the other functional Muslim democracy in the world, albeit with its own flaws. Babacan was in Kuala Lumpur in September to address the Plenary session of the Global Islamic Finance Forum (GIFF) 2012, which was organized by Bank Negara Malaysia, the central bank. “From now on, we are concentrating on reform areas like education, the judiciary, because we believe that our courts should be reliable. And that's why we are now up beating our reform efforts in the area of the judiciary. If only we become a true state of law, then we are going to move from being a middle-income country to a high-income country. We don't want to fall into a trap of being a middle-income country for a long time. Education and judiciary, we believe the two important areas to propel us forward,” he explained. Asked if there was any progress on the drafting of a new constitution to replace the one introduced in the early 1980s by the last military regime of General Kenan Evren, Babacan was less forthcoming. Two years ago the government of Erdogan won a referendum to draft a new democratic constitution for the country, which many in Turkey and in Europe believe is essential for the country to evolve into a truly fully-functional liberal democracy. In terms of the political reforms, the government has introduced measures to enhance the country's previously ‘guided' democratic system, to improve freedoms, fundamental rights and the rule of law. These have been done within the process of European Union accession, an ambition which is still on the agenda of the Erdogan Government, albeit the urgency has waned given the current eurozone sovereign debt crisis. “We have introduced some amendments to the constitution in terms of human rights; education; the relation with the armed forces etc. For instance, it is now illegal under the constitution and Turkish law for the armed forces to stage a military coup. We were supposed to have an-all party consensus on drafting a new constitution. But this has not progressed. But I agree with you that ideally we need to have a new democratic constitution to replace the old one,” he said. In reality, the EU accession process has been a key “external benchmark” and an “external anchor” albeit that some of the EU Reports and findings have been to the chagrin of Ankara. “The EU process was important for us especially, for our domestic reform efforts. And we passed many thresholds and the fact that we have a much better political stability in Turkey right now is mostly due to the fact that of the reforms that we have introduced,” he explained. One of the more ambitious plans of the Government is to develop Istanbul, the historic commercial capital of Republican Turkey, into an international financial centre catering for both conventional and participation (Islamic) banking and finance. Indeed the government has passed most of the enabling laws and regulations to facilitate this. In this respect Ankara has been encouraged by the fact that the International Finance Corporation (IFC), the private sector funding arm of the World bank Group, and the EBRD (the European Bank for Reconstruction and Development) have both recently opened their regional office for the Middle East & North Africa (MENA) and for Eastern Europe in Istanbul. Similarly global corporate giants such as Microsoft and Coca-Cola too have chosen Istanbul as the the regional hub serving over 90 countries. Another priority for the Government is too continue its support for the Turkish agricultural sector, which continues to grow. “Usually one would expect moving from agriculture to industry, but in Turkey, agriculture is also moving fast and we are now the 7th largest country in the world in terms of agricultural GDP.” Agriculture is a strategic objective of Turkey's economic policy and the Government expects the sector to be the fifth largest contributor to GDP by 2020, alongside other sectors including tourism, which last year accounted for 32 million visitors to the country making Turkey the 6th largest tourism destination of the world.
