After a year of significant reforms, the Government remains committed to an ambitious agenda of economic transformation. With no elections for the next four years, Turkey offers great investment opportunities.
It is important to understand what has been implemented since we took office last year, when a currency attack, unprecedented in scale, compounded by a host of other financial fragilities was underfoot. Evidently, we were dealing with truly extraordinary events. The New Economic Program was unveiled and we acted swiftly upon assuming office to restore price stability and guide the economy towards a more sustainable growth path. The results of our intervention are encouraging— inflation is already lower than a year ago; and single-digit inflation is within our grasp by September.
The Central Bank continues to take measures independently to pursue its fight against inflation. In tandem we are working to contain food prices by supporting the optimisation of supplychains, with an expectation to reap the benefits of such initiatives this autumn. This is critical given food prices have been a nagging source of inflation since early 2010s.
Following the Structural Transformation Steps announced in April, certain policies have been implemented to improve the economic outlook in the near term as well as to increase the productivity and growth potential in the long term. Our goal is to achieve sustainable growth while addressing Turkey’s main source of fragility, the chronic current account deficit, which has been financed by short-term debt.
Looking into the financial system, Turkish banks have capital adequacy ratios well above global benchmarks. However, we remain vigilant: state-owned banks received new capital injections in April, a number of privately-owned banks also raised capital, and the banking regulator has asked all banks to retain earnings. We are also developing state-of-the-art macroprudential oversight capabilities to detect systemic risks to financial stability.
The volume of credit, which contracted c.15% y-o-y, remains a serious concern. We want to ensure that the system continues to provide an uninterrupted flow of credit to eligible businesses. The new law on financial restructurings shows our determination in this matter. In addition, we are keeping a close eye on banks as they work through distressed loans, particularly in the energy and construction sectors. It is worth noting that several international and domestic investors are interested in forming funds to acquire such loans. We are keen to introduce necessary rules and regulations to extend our support to business environment.
A major policy initiative to boost domestic savings is to be announced. This will lead to longterm growth and reduce reliance on short-term capital flows. In addition, we are filling so-called information gaps by requiring firms with domestic bank borrowings exceeding TRL100 millions ($18 millions) to submit audited financial statements to their banks before they obtain loans. A national credit rating agency will further improve the information environment and deepen capital markets. Furthermore, there is great potential for growth in the insurance industry to supplement the diversity of funding sources.
Exporters have been playing a substantial role in the improvement of Turkey’s current account balance. Their tremendous entrepreneurial drive shown in diversifying export markets to over 200 countries, benefiting from modern logistics, transportation, energy and communications infrastructure ,has been the backbone of export market growth. Targeted loan programs, launched in June, have been designed to further support in this regard.
Our sovereign wealth fund along with other state institutions are actively holding discussions with strategic partners in the pharmaceuticals, petrochemicals, energy and technology sectors in order to bolster the current account and attract foreign direct investment. In addition, significant joint exploration and production opportunities await investors in the Eastern Mediterranean. Turkey’s natural endowments to become the preeminent energy, logistics, trade and export base at the crossroads of three continents remain undeniably live and attractive.
Turkey’s strong fiscal balance sheet is reassuring on the road towards re-establishing robust growth in 2H-2019. We are about to undertake significant transformation of our tax code to strengthen tax administration, realize base expansion and reduce corporate taxes to create investments and jobs. Turkey’s track record of fiscal discipline is self-evident and will never change. Other reforms including the effective functioning of the judicial system will be addressed before yearend, contributing to a healthier and more predictable investment environment. These structural initiatives will be central looking towards the centennial of our republic in 2023.
Aside from economic management, Turkey’s national security priorities are evident. We will remain a member of the NATO. As a regional powerhouse Turkey will always build and nurture wide-ranging friendships and economic ties. We are deeply committed to defending the free market system, the primacy of the rule of law and the universality of human rights – all of which are essential to building a robust economy.
We are enthusiastic about the opportunities that lie ahead, and we welcome all partners who are willing to take part.
Berat Albayrak is the Minister of Treasury and Finance of Turkey
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