Considering the Turkish Economy and the Conditions of its Success

The Turkish economy is currently moving at full throttle. Not since the privatization reforms of the venerable Turgut Özal has there been such a sustained stretch of economic progress. While the average Turk will point to the fact that unemployment, which probably unofficially hovers at 14-16%, remains a sizable dampener to overall well-being, a considerable cross-section of Turkish society would nonetheless agree that the country's economy is enjoying unprecedented prosperity.

Taxi drivers in Istanbul and even the heads of conglomerates will tend to point to the same rationale for this long period of positive growth: the political stability experienced under the AK Party. There is little dispute that Turkey's current period of economic success correlates nicely with the starting date of the AKP's leadership of the Turkish political system. In a country that is accustomed to military coups, hyperinflation and dramatic terrorist attacks, the AKP's tenure has been quite serene by Turkish standards. This point was not lost on the AKP during the July parliamentary election and Abdullah Gül's subsequent successful bid for president. Many Turks voted for the AKP simply due to economic issues and not as a result of the party's much ballyhooed portfolio of social views.

These calm conditions have given foreign investors cause to increasingly reward Turkey with much needed sources of investment. Foreign capital inflows have been quite often directed toward the very large number of government assets, which the AKP has aggressively sought to privatize. The growth of exports have also played a prominent role in the country's economic resurgence. According to the head of the Turkish Congress of Exporters (TIM), Turkey's exports exceeded $100bln during the past 12 months for the first time in the country's history. Exports of automobiles took the lead, followed by clothing and textiles and steel-iron in a distance third.

The numbers would indeed seem to indicate that AK Party is doing something correct. However, "the numbers" only tell a small sliver of the entire story as is often the case. In addition to the AKP's adept management and calming presence, one must also consider certain other factors that have equally contributed to the situation.

There has been a great prevalence of "petrodollars" in the Middle East looking for "shariah-compliant" homes for investment. Under the unprecedented political auspices of the religiously conservative AKP, Turkey emerged as a much more viable option for this capital. In this regard, the Turkish economy of the AKP era has been a direct beneficiary of the oil-crazed world and its oil market. Second, the availability of inexpensive products from China has also had a great influence on the Turkish economy. In addition to increasing the buying power of the Turkish consumer, cheap Chinese products have so far been a benefit to the non-textile sectors of the Turkish economy. This has particularly been the case for the outsourcing of component parts, which are used for goods manufactured in Turkey.

All of this should be reconsidered in the increasingly gloomy shadows cast by the foreign trade deficit, which Turkey currently maintains. In addition to considerable spending in the public sector, Turkey's great affinity for imports is strongly driven by its energy consumption needs. While this situation is more palatable during periods of reliable foreign investment, the continued strength of such inflows is certainly ephemeral.

In the opinion of this observer, it is time for the AKP to stop riding on its somewhat false laurels concerning economic management. The AKP must instead use its strong political mandate to take the types of tough measures, which are necessary to cushion the Turkish economy's inevitable descent into more turbulent economic waters. If the AKP chooses not to take such steps, it will eventually find itself in equally hostile circumstances.