Turkey turns on the economic charm

Analysis
By Jorn Madslien
BBC News business reporter

Three years after a gruelling economic crisis, Turkey has dressed its economy to impress.

The economy is growing fast, the government insists. Education levels among its young and large population are rising. Unemployment levels, in percentage terms, are heading fast towards single digits. Inflation is under control.

There is no question that although Turkey is doing much better than in the past, it remains quite vulnerable Michael Deppler International Monetary Fund

A new law to govern its turbulent banking system is on the cards. The tourism industry is booming and revenues from visitors should more than double to $21bn (£10.8bn) in three years.

Moreover, government spending is set to be frozen and a burdensome social security deficit is being tackled.

Income and corporate taxes will be cut next year in order to attract $15bn of foreign investment over the next three years.

A loan restructuring deal with the International Monetary Fund (IMF) is pretty much in the can. And following recent macroeconomic restructuring efforts, its currency is floating freely and its central bank is independent.

Literate and qualified

The point of all this has been to convince Europe's decision makers that rather than being a phenomenally costly exercise for the EU, allowing Turkey in would in fact bring masses of economic benefits.

The nation is young, literate and qualified, Turkish leaders say

"The cake will be bigger for everybody," said Deputy Prime Minister Abdullatif Sener earlier this month. "Turkey will not be a burden for the EU budget."

If admitted into the EU, Turkey would contribute almost 6bn euros ($8bn; £6bn) to its budget by 2014, according to a recent impact study by the country's State Planning Organisation.

As Turkey's gross domestic output (GDP) is set to grow by 6% per year on average, its contribution would rise from less than 5bn euros in 2014 to almost 9bn euros by 2020.

Turkey could also help alleviate a labour shortage in "Old Europe" once its population comes of age. By 2014, one in four Turks - or about 18 million people - will be aged 14 or less.

"A literate and qualified Turkish population," insisted Mr Sener, "will make a positive impact on the EU."

Worth it in the long run

This runs contrary to the popular view that Turkey is getting ready to dig deep into EU taxpayers' wallets.

However, Turkey's assertions are confirmed by Brussels' own impact studies, which indeed say that Turkish membership would be good news for the EU economy.

But only over time.

Costs are projected to be vast during the early years of Turkey's membership, with subsidies alone estimated to exceed 16.5bn euros and, according to some predictions, balloon to 33.5bn euros.

This would include vast agricultural subsidies and regional aid, though such payments should decline as the country's farm sector, which currently employs one in three Turks, would employ just one in five by 2020.

Politically motivated

Such high initial expenses would be coupled with risks that the benefits flagged up by Turkey's government would never be delivered, say those who feel the Turkish project should be shunned.

Critics' views range from xenophobia to well-documented concerns

Some fear that rather than providing an educated, sophisticated labour force for Europe at large, the people who will leave Turkey to seek work abroad will be poor, uneducated - and plentiful.

More recently, less palatable concerns - at least in liberal European circles - have been voiced, with senior EU or member state officials talking darkly of a "river of Islam", an "oriental" culture and a threat to Europe's "cultural richness".

Of course, many opponents are politically motivated - their views ranging from xenophobic prejudices about the country's Muslim traditions to well-documented concerns about the government's human rights record.

Yet their economic arguments should not be dismissed out of hand.

Debt mountain

Critics insist that much of the optimism about Turkey's economic roadmap has been over-egged - an argument amplified by a 134% rise in the country's current account deficit to $10.7bn during the first 10 months of this year.

Does money rule the day?

The country's massive debt - which includes $23bn owed to the IMF and billions borrowed via the international bond markets - also remains a major obstacle to its ambition of joining the EU.

"In the new member states of the European Union, gross public debt is typically about 40% of gross domestic product," says Reza Moghadam, assistant director of the IMF's European Department.

"At about 80% of GDP, Turkey's gross debt is double that figure."

Turkey's debts have largely arisen from its efforts to push through banking reform after a run on the banks in 2001 caused the country's devastating recession.

"There is no question that although Turkey is doing much better than in the past, it remains quite vulnerable," says Michael Deppler, director of the IMF's European Department.

"Its debt is far too high for an emerging economy."