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The new star of fiscal liberalism 19 janvier 2012

Posted by Acturca in Economy / Economie, Middle East / Moyen Orient, Turkey / Turquie.
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The Australian, January 19, 2012, p. 9

Greg Sheridan, Foreign editor

p. 10

Turkey’s rise an object lesson

Though not perfect, the economic dynamo could become a model to the Arab world

« As a young man I could never have imagined that Turkey would reach the place it has reached now, » says the avuncular professor Ilter Turan of Bilgi University in Istanbul.

He is working, he tells me, on a book that will examine the revolution in Turkey’s outlook « from maximising security to maximising prosperity ».

A few days after talking to the good professor I travelled to Turkey’s capital, Ankara, to meet Deputy Prime Minister, Ali Babacan, who has been a dominant figure in Turkey’s economic policy over the last decade.

Turkey’s is as remarkable an economic story as the world can offer us today. For one quarter last year, Turkey’s economy grew at a faster rate than China’s. The story overall is of a telling and deeply reassuring triumph of orthodox, liberal economic policy in an Islamic cultural context. The world probably hasn’t seen anything quite like it since the early days of Mahathir Mohamad’s prime ministership in Malaysia.

But before we get to the specific story of Turkey’s economic reform, it’s worth registering the scale of what’s happening. Turkey is a nation of nearly 80 million people. Its economy now is worth about $US1.1 trillion, ($1.06 trillion) which makes it of similar size to Australia and near to the 15th biggest economy in the world.

Given its growth rates, Turkey has every prospect of entering the top 10 economies of the world in the next few years.

Babacan offered me one statistic that dramatised Turkey’s rise. A decade ago, Turkey’s per capita income was $US3300. Now it is about $US10,500. Of course, that does not mean that Turkey has more than tripled the size of its economy in a decade.

Exchange rate variations have played a part in these measurements. But the scale of the economic transformation is clear. There has been a lot of talk about Turkey serving as a political model for the emerging, hopefully democratic, Arab societies of the Middle East. There are, naturally, all sorts of problems with this idea. Turks are not Arabs. The cultural context is different. Turkey has a long experience with electoral politics, and so on.

Nonetheless, it is not necessary to regard Turkey as perfect, or its democratic practice as beyond criticism, to conclude it would be a good thing if the Arabs aspired to emulate its success.

But Turkey’s politics are important for themselves and also its economics. In fact you could argue its economics offer more lessons than its politics: certainly that its economics enable its politics. If Arab politics are to work, it is almost certain that their economics will need to work as well.

A faux-orthodoxy has gained some ground to the effect the global financial crisis, and all the subsequent troubles that have roiled the global economy, come from an excess of free market or liberal economic policies.

In fact, the crisis came from poor regulation, which is no part of a free market; from socially directed and government mandated commercial behaviour such as sub-prime lending; and from politicians promising benefits which led to countries, like individuals, living beyond their means. One part of Babacan’s story struck me more than any other. When the GFC hit, Turkey thought the situation over and decided not to introduce fiscal stimulus. Babacan told me: « In 2009, when many governments were announcing fiscal stimulus packages to promote growth, we announced a fiscal consolidation program, while the world economy was shrinking.

« We believed that confidence would be the key and public debt would be a confidence issue. European countries had big debts but still announced fiscal stimulus. So markets lost confidence in them and they could not produce growth. We announced a three-year fiscal consolidation program. So public debt was never a factor for investors in Turkey. »

Alone among OECD nations, Turkey did not need to change or extend any guarantee for its bank deposits, and none of its banks got into GFC trouble. Babacan further makes the point that Turkey went into the crisis in good shape because of several years of economic reform.

Babacan represents the ruling AK Party, which has Islamic roots and an Islamic identity. Before his party won government, a decade ago, it visited financial capitals such as New York and London to reassure the leaders of the international financial system of its soundness and orthodoxy.

« From the very beginning, » Babacan says, « we defended fiscal responsibility and fiscal discipline. We wanted to give predictability to the markets. »

Turkey’s budget deficit is now about 1.5 of GNP, but this is a better performance than it looks. Turkey runs a primary surplus, which means it spends less than it raises, apart from interest payments on previous deficits. A decade ago, Turkey’s budget deficit was 12 per cent of GDP. In 2002, government debt was 74 per cent of GNP, now it’s 39 per cent.

On monetary policy, Babacan’s government oversaw an independent central bank that had price stability as its primary objective. This broke Turkey’s history of hyper-inflation, though last year inflation was a worrying 10 per cent (it was 30 per cent a decade ago). In the middle of last decade, the Turks tightened banking regulation and virtually made it impossible for the banks to go into sub-prime lending.

There is a worrying current account deficit, driven by soaring energy prices and an investment boom. Babacan rightly observes that today’s imported machinery is tomorrow’s exports. Nonetheless Turkey will reduce its energy dependence with a big move into nuclear energy.

Despite his government’s Islamic identity, Babacan says Turkey practises, and champions, secular government: « We believe there should be a secular system in Turkey. My Prime Minister (Reycep Erdogan) in Egypt a few months ago said secularism was important for Egypt. »

Babacan continues: « When we say secularism we mean there is a distinct separation between the state and religious affairs, that the state should not be involved in daily religion, that the state should treat in equal ways all its citizens. »

I don’t mean to imply Turkey is getting everything right. But it is getting a great deal right. The economic performance, so far, is undeniable. And it has been produced by orthodox, liberal economic policy, which has not compromised but empowered the ruling party’s distinctive identity.

We will hear a lot more about Turkey.

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