POLICY BRIEF ECONOMIC SURVEY OF TURKEY, 2008 E. TUĞÇE DEMİREL EGE BIÇAKCI

ABOUT OECD Organisation for economic co-operation and develeopment took over from Organisation for European Economic Co-operation (which was established in 1947, for American and Canadian aid under the Marshall Plan for the reconstruction of Europe after the World War II), in Its aim is helping to maintain sustainable economic growth and employment of its members and to raise the standard of living its member countries.OECD has thirty countries.

ABOUT OECD

HOW TO MAINTAIN HIGH GROWTH? The question try to express that; Turkey’s successful shift in growth strategy, Macroeconomic instabilities slowed down the growth The challenges during the transition are: Using the fiscal policies for consolidation and credibility, By setting structural policies, Decreasing the formal employment barriers This transition caused the increasing the exchange rates, tensions in financial markets, and a dissappointing growth performence. The conditions continued till the mid-2007.

new initiatives for growth, need to IMF help, European Union’s negotiations and international environment. the developments below were saved: Large employment areas, Inflation rates dicreased, A primary fiscal suplus was around 6% of GDP*, P ublic debt was brought down. * OECD, The Economic Survey of Turkey, 2008 (p.3) HOW TO MAINTAIN HIGH GROWTH?

HOW TO MAINTAIN HIGH GROWTH? All these developments helped D iflation, Sophisticated industries achieved the creating high employment opportunities, T raditional industries used low-skilled labour and tended the lose market share. T he total employment rate declined and aggregate employment rate slightly increased. THE SURVEY HAS AN IDEA FOR ALL CIRCUMSTANCES THAT EXPLAINED ABOVE; “To stimulate an upturn, confidence in the stability of the overall governance environment should be restored, and the bussiness sector should be provided with more supportive structural conditions.” * ( OECD, The Economic Survey of Turkey, 2008 (p.5) )

IS A NEW FISCAL RULE DEFINITELY NEEDED? The question explain s the a fiscal rule application with IMF help and its necessity. With the IMF agreement, central dependence and domestic stability were provided. A new plant for a transition A fiscal policy has been announced recently, it was named “Medium- Term Fiscal Framework”

IS A NEW FISCAL RULE DEFINITELY NEEDED? Turkey is now in a strong position with the new fiscal strategy. The new fiscal policy should specify the primary surplus The new policy can provide GDP growth, and healthy taxation process. THE SURVEY suggests that new fiscal institutions shoulde be fully implemented and enfoeced with effective multi-year spending ceilings.  The most important issue about the new fiscal policy is maitaining fiscal institutions succesfully and strong political action.

HOW TO RESTORE THE CREDIBILITY OF THE MONETARY POLICY? The explicit medium-term inflation target at 4% for set by Central Bank have caused some challenges.The inlaftion was higher than expected. Monetary policy needs variable policies to make disinflation. These policies should be ;  Competition reforms,  A fully enforced multi-year fiscal framewok  An adaption of employers and employees to the inlaftion target.

DO FORMAL SECTOR FIRMS NEED MORE FLEXIBLE REGULATIONS? Trade-exposed sector and cost-sensitive activities weakened.So these changes influenced the entire economy. To fix this situation, The Turkish Economy should develop its competitiveness of labour-intensive activities. Formal sector firms needs more flexible regulations.And these regulations can only be possible by;  encouraging the productivity growth,  moderating wage increases and  dealing with outputs differently.

DO FORMAL SECTOR FIRMS NEED MORE FLEXIBLE REGULATIONS?

Manufacturing industry has been developing itself well but these gains don’t spill over the entire economy. The aim is to increase productivity and competitiveness. Turkish Economy should transform the informal and semi-formal activities into the formal business activities. (the role of informal sector should be significantly decrased). An example is an Employment Package enacted in May The package reduce labour tax wedges and promotes national employment services. DO FORMAL SECTOR FIRMS NEED MORE FLEXIBLE REGULATIONS?

Top priorities in folstering the development of the formal sector are;  A thorough reform of labour market regulations along OECD best practices,  Accelerating the modernisation of capital markets to increase benefits of formality and to stimulate investment,productivity and employment growth. DO FORMAL SECTOR FIRMS NEED MORE FLEXIBLE REGULATIONS?

IS THE LABOUR MARKET REFORM THE TOP PRIORITY? Priority should be given to reforms such as;  Reducing the legal employment costs of low-skilled workers;  Continuing to cut mandatory social contribution rates, and increase the role of voluntary saving schemes in financing the social security system;  Making permanent labour contracts ;  Eliminating size thresholds in the application of the labour law.

WHY IS FINANCIAL TRANSPARENCY ESSENTIAL? In Turkey, corporate financial markets are underdeveloped. Increasing financial transparency is the key requirement for the development of markets,corporate debt securities,private equity placements and listed equities. Three areas are important;  Transition to Basel II rules for corporate banking  Adoption of a new Commercial Code enacts companies of all sizes produce externall audited accounts;  Modernisation of collateral registers and the collateral regime.

 Turkish Government should develop a comprehensive ‘formalisation strategy’ to deepen the structural reforms.  With this strategy, the risk of occuring generate output and employment losses will be weakened.