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TURKISH ECONOMIC PROGRAM: CHALLENGES AND PROSPECTS

Republic of Turkey. TURKISH ECONOMIC PROGRAM: CHALLENGES AND PROSPECTS. Faik ÖZTRAK Undersecretary of Treasury. September 2002. Subsequent Financial Crises and Response. Two Overriding Goals of the New Program:.

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TURKISH ECONOMIC PROGRAM: CHALLENGES AND PROSPECTS

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  1. Republic of Turkey TURKISH ECONOMIC PROGRAM: CHALLENGES AND PROSPECTS Faik ÖZTRAK Undersecretary of Treasury September 2002

  2. Subsequent Financial Crises and Response... Two Overriding Goals of the New Program: 1. To manage the crises and increase the resilience of the economy to shocks • Floating exchange rate regime • Immediate cleaning up of the banking losses • Front-loaded and substantial fiscal adjustment together with the financial support of the IFIs 2. To ensure growth with disinflation • Monetary regime redefined with inflation targeting • Speeded-up reforms in the public sector (transparency&efficiency) • Restructuring the financial system • Enhancing the role of the private sector

  3. Increasing the resilience of the economy to shocks... CPI-based Real Effective Exhange Rate (August 2002) Private Manufacturing Industry Unit Wage Index (in $ terms) Historical avg.

  4. Increasing the resilience of the economy to shocks... Cleaning up the banking sector losses

  5. Increasing the resilience of the economy to shocks... Unprecedented Strengthening of the Underlying Fiscal Position Primary Surplus % GNP Cyclically Adjusted Primary Surplus % GNP P = Program Targets

  6. Impressive Progress in the Structural Reform Agenda Public Sector Reform Creation of Regulatory Authorities and Adoption of International Practice • Granting Central Bank Full Independence • Ensuring Universality of the Budget • Public Finance and • Debt Management Law • Indirect Tax Reform • (Special Consumption Tax Law) • Public Procurement Law • Private Pension Law • Electricity Market • Natural Gas Market • Sugar Market • Tobacco Market • Telecommunication • International Arbitration Financial Sector Reform • Total Restructuring of the Banking Sector • Closing down of Unviable Banks and a Thorough Overhaul of the System • Bank Recapitalization and Corporate Debt Restructuring • State Banks’ Reform

  7. From Crisis to Recovery... 12-months Cum. Current Account Bal. Growth Resumed Employment Index (s.a.) Historically Low Inflation (Jan-Aug. CPI) Average

  8. From Crisis to Recovery... Growth resumed

  9. From Crisis to Recovery... Inflation at its lowest historical level (8-months cumulative CPI) Average

  10. Strong external balance... 12-month Cumulative Current Account Balance (as of June 2002)

  11. Private Manufacturing Industry Employment...

  12. Public Sector Net Debt...

  13. Consolidated Budget Debt Stock Profile August 2002 (prov.) Billion US Dollars Domestic Market37.4 Domestic Public Sector 41.3 External 28.0 Bond 21.9 Other 6.0 Bilateral & Int’l Inst. 13.3 IMF Credit 19.6 Total 139.5

  14. Consolidated Budget Domestic Debt Stock Profile August 2002 (prov.) Quadrillion TL FLOATING 60.4 FIXED 34.1 FX 42.6 TOTAL 137.1

  15. Recent Trends... Interest rates Dollar Bond Spreads Average Domestic Debt Maturity (months) Exchange Rate

  16. Financing Requirement of the Central Government 2001 2002 2003 ( US$ billion) Jan- Sept Oct Dec Tot 68.2 68.3 18.6 57.5 61.5 15.9 35.2 41.0 9.7 22.3 20.4 6.2 10.7 6.8 2.7 7.7 4.6 1.6 3.0 2.3 1.1 68.2 68.3 18.6 43.5 46.8 13.4 35.4 40.9 12.0 8.2 5.9 1.4 24.6 21.5 5.3 9.0 8.3 3.1 1.1 0.0 0.0 10.7 13.1 0.1 4.0 2.3 0.1 -0.2 -2.2 1.9 76% 77% 84% 97% 103% 88% 86.9 73.3 77.4 62.6 50.8 35.9 26.6 26.7 9.6 10.8 6.2 7.7 3.4 3.1 86.9 73.3 60.2 52.7 52.9 47.8 7.3 5.0 26.7 20.6 11.3 10.2 0.0 1.7 13.3 3.4 2.4 5.1 -0.3 0.3 79% 84% 98% 92% Total Debt Service Domestic Debt Service Principal Interest External Debt Service Principal Interest Financing Sources Domestic Borrowing Borrowing from the Market Borrowing from the Public Sector Other Primary Balance (cash basis) Privatization International Institutions External Borrowing Treasury Cash Balance Total Domestic Borrowing / Domestic Debt Service Borrowing from the Market / Domestic Debt Service to Market(*) (*) Market ratio includes payments to public banks

  17. Selected Economic Indicators 1999 2000 2001 2002P 2003P -6.1 6.3 -9.4 3.0 5.0 55.8 50.9 57.8 48.6 26.2 62.9 32.7 88.6 31.0 16.2 68.8 39.0 68.5 35.0 20.0 -2.0 2.3 5.9 6.5 6.5 1.5 4.2 4.6 5.1 5.6 -1.4 -9.8 3.4 -1.4 -1,8 29.3 31.7 35.3 37.4 41.1 -39.8 -54.1 -39.7 -44.1 -49.2 5.2 7.6 8.1 7.5 8.1 Growth (%) GNP Deflator (%) WPI (end period, 12 month change, %) CPI (end period, 12 month change, %) Public Sector Primary Surplus (%GNP) Consolidated Budget Primary Surplus* (%GNP) Balance of Payments (US$ billion) Current Account Balance Exports Imports Tourism Revenues *Excluding CBT profits, interest receipts and privatization proceeds P: Preliminary

  18. Interest Rate Assumptions...

  19. From financial stability to growth and debt sustainability... Net Public Debt % GNP

  20. Looking Ahead... Public Sector Reform • Civil Service Reform • Pension Reform • Reform on SEEs’ Governance • Direct Tax Reform (Second Phase of Tax Reform) • Tax Administration Reform • Public Financial Management and Financial Control Law Enhancing the Role of Private Sector Also... • Move to Formal Inflation Targeting • Reform on Bankruptcy Law • Transfer of non-bank financial institutions to BRSA • Privatization of Turk Telekom • Privatization of Halkbank • Privatization of TEKEL, TŞFAŞand PETKİM

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