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Dubai: While aiming to become part of Europe, Turkey is keen to maintain its relations with its neighbours in the Arab world. In an exclusive interview, Mehmet Simsek, Turkey's Minister of Economy, told Gulf News that the region needs visionary leaders like those in the UAE to bridge the gap with the West.
Gulf News: Our main purpose is to focus on economics, but in the new world it is hard to separate the economy from politics. Don't you think that the military operation in northern Iraq will hinder Turkey's growth ?
Mehmet Simsek: In the past six years Turkey has witnessed a significant political, economic and social transformation, making significant progress in the general freedom and liberalisation of the economy. Here we have to separate between the demand for a better life, which is the right of every citizen, and terrorism.
My government has invested heavily in human capital and infrastructure, and particularly in reducing differences in regional development. When I grew up there was no electricity in my region, no proper asphalt road, no running water.
You still have good trade relations with the Iraqis. You have exported goods worth $1 billion to Iraq.
One billion US dollars of trade is not what we are looking to have with Iraq. Turkey's whole trade volume was about $290 billion in 2007. Prior to the [1990] Gulf War, Iraq accounted for nearly eight per cent of Turkey's total trade. By today's figure that would have been roughly $25 billion to $30 billion per year.
We have suffered a lot from an Iraq that was not stable, and that is why I say what I am saying today. We would like to have a genuine, strong and democratic Iraq that provides a good place for every Iraqi to live regardless of religion and ethnicity, and we are ready to offer support in any way that will help to provide Iraqis with what they deserve.
What differentiates Turkey, and what helped it overcome the serious economic problems of the 1980s and 1990s?
Successive Turkish governments between 1960 and 2000 implemented 17 IMF programmes. These were meant to stabilise the currency and reduce inflation and deficit. Almost all of them either failed miserably or had partial success. None were completed.
First of all, we as a government are connected to people in the sense that we have a very broad support. People have given us a strong mandate. Secondly, we have open minds, open hearts and we have a different mentality. We don't swear at globalisation. We understand that the world is getting flatter and the question is how do we create institutions and encourage structural reforms in order to take advantage of globalisation and reduce our vulnerability towards it. We are very pragmatic and we realise our constraints, our strength, our opportunities and challenges.
In addition, the structural reforms we implemented earlier have paved the way for our current success. We regained the confidence of international institutions.
Just to give you an idea how the bad the situation was, when the party took office in 2002, [if] we had 100 lira of tax revenue, 84 of that was going towards interest payments because of so much accumulated debts. There was no room for manoeuvre.
In that year, the budget deficit was 14.6 per cent - massive. Debts to GDP ratio, on an EU definition, was 93 per cent. [Whereas] at the end of last year, the expenses of the public sector was balanced, even though we had two elections and one referendum.
In terms of public sector borrowing requirements, as of the end [of] last year we reduced the gross debt to GDP ratio to around 56 per cent, which is well within EU criteria.
Corruption was a significant issue in previous governments and we went after that. We have cleaned up the banking sector. We have essentially instilled confidence and strengthened institutions with an independent sort of watchdog for all the industries. We have initiated significant fiscal reports in order to strengthen our revenue administration. This is a work that is not complete, and not even half way through, for the model of Turkey that we envisage.
Sadly, during our period in office the oil price has gone up from $24 to nearly $100, and that really hurts us. It reduces our growth because last year we were a net importer of oil products worth $34 billion. It has widened our current account deficit. It pushes our inflation up, so it keeps our interest rates high.
But despite this massive energy price shock that we are experiencing, despite a drought last year and despite the global increase in soft commodity prices, we have been able to reduce inflation to single digits and keep it there. It is currently at about 8.2 per cent.
The biggest success is foreign direct investment (FDI). Between 1980 and 2002 Turkey received less than $1 billion per year. In the last two years alone we have received $42 billion of FDI, because investors started gaining confidence in our economy, and because we came with reforms and delivered them.
What about joining the EU?
We said Turkish people deserve the standard of democracy that exists in the West. We are not perfect and we still nowhere near our vision of Turkey in terms of enhancing rights and democracy along with prosperity.
But we have surprised some circles. The EU told us that we have to undertake a set of procedures, and we did it. They ran out of excuses, so finally they allowed us to begin formal accession talks in October 2005. [Still] some Europeans go slow, while others wants a different end-game.
For us, those are not relevant, for two reasons. First, the journey itself towards EU matters more than the end-game. Because it means we create institutions. Equally important, we have achieved a degree of real convergence in per capita GDP. Per capital GDP was $2,600 in 2002, and by the end of last year it was around $7,300. It has tripled.
On economic reform, we have done a lot, but no way near what we would like to in terms of having to sustain the momentum, because we have a lot of structural problems. Turkey has huge challenges, including labour market flexibility, energy market reforms and social security reforms. None of them is populist.
Turkey is extremely young demographic and we have massive deficit in social security system, and people don't like to correct it. We have to tell people that it is not going to be sustainable in 2045 so we have to introduce the reforms.
Another example: In 2006 we were 91st in the World Bank 'Doing Business' survey, which covers 177 countries. In 2008 we jumped 34 places, and we are now 57th. It is still really embarrassing, and it is still a poor ranking because [Turkey] is the sixth largest European economy in terms of GDP and the 17th largest globally. We need to be in the top 20.
When do you think Turkey will become part of Europe?
I am convinced that if Turkey does what it takes to become EU member, it will become an EU member because EU needs Turkey more that Turkey needs the EU. I can envisage that we will become Europeans at one stage. Even if we did not, the whole process is good for Turkey, is good for Europe, is good for the Middle East, is good for the world.
You are here in the UAE after visiting Kuwait and before heading to Qatar. What is the aim of your regional tour?
I have met a lot of local businessmen and said: we need you, we need partners, we want you stake-holders. In my opinion there is no more foreign direct investment in the world - there is global investments. We are all over the world, and you are all over the world, and we have highly diversified economy and we want you to come in and find partners to participate in our economy.
The reason why we need investors is that we have huge financing needs. Also, we want to grow fast, and that requires a lot of financing. I told Turkey's prospective partners: Don't expect everything perfect because we still have red tape and issues, but the government is there to help and reduce it as much as it can.
Where do you see Turkey's investment opportunity for businessmen from the Gulf?
There are real and great opportunities in the areas of energy, infrastructure, retail outlets and commercial and residential real estate. Tourism is a big industry in Turkey. Last year we received 23 million foreign tourists and another four million Turkish expats. Twenty-seven million tourists visited Turkey, and as a result Turkey has become a lot more open society, and that itself encourages tourism.
The Gulf has money because you have a massive surplus here. Since 2002, GCC countries have generated a current account surplus of $740 billion. This is probably too much to be absorbed in the region.
There is a lot of common heritage, a lot of affinity, and the fact that we have the EU project and are looking towards the West doesn't mean that this should be at the cost of our relationship with the Gulf region.
In Dubai you have gained unprecedented experience that is recognised internationally in real estate development. We in Turkey need to implement such experience and utilise it. I think the leaders of the UAE have achieved something that can become an international model, and we in Turkey are willing to learn.
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