OECD Economic Surveys: Turkey 2008: Edition 2008: Turkey - Volume 2008 Issue 14 (Oecd Economic Surveys 2008)

Table of contents
Basic statistics of Turkey (2007)
Executive summary
	Consolidating macroeconomic policies
	Bolstering the competitiveness and job-creation capacity of the business sector
Assessment and recommendations
Chapter 1. New challenges facing the Turkish economy
	A new era of macroeconomic stabilisation and growth acceleration
	The challenges of sustaining higher growth
		Macroeconomic challenges are typical for a catching-up economy
		Structural challenges
	The economy has significantly strengthened since 2001
		Growth was driven by a vigorous private sector
			Figure 1.1. The post-2001 growth acceleration
			Figure 1.2. Productivity more than employment catch-up underpinned the acceleration
			Figure 1.3. Growth was entirely private-sector driven
			Figure 1.4. Respective shares of large enterprises and medium and small sized enterprises in industry
			Box 1.1. The rise of “Anatolian Tigers” as cultural change
		The globalisation of the economy is progressing
			Figure 1.5. The globalisation of the Turkish economy
			Box 1.2. Turkey’s Revealed Comparative Advantages
				Table 1.1. Spearman correlation rank coefficient, 1996 RCA versus 2006 RCA
				Figure 1.6. Trade specialisation is not very dynamic but quality improves
			Figure 1.7. Import competition in the domestic market
			Figure 1.8. Capital inflows increasingly fund private investment and consumption
	Structural weaknesses slow down the catching-up process
		Gaps remain large against OECD living standards
			Figure 1.9. Sources of real income differences
		Work incentives are strong but human capital is weak
			Figure 1.10. Structural shortcomings of the labour market
		The formal regulatory framework is not supportive of growth
			Figure 1.11. Product and labour market regulations
		The competitiveness of the economy has come under pressure
			Figure 1.12. Relative ULCs: Turkey and Benchmark countries
			Box 1.3. Turkey’s international competitiveness under real exchange rate fluctuations
				Figure 1.13. Turkish industry’s competitiveness, 1998-2007
		Demand for low-skilled labour has weakened
		Persisting imbalance between domestic and external demand
			Figure 1.14. Demand sources are less balanced than in other catching-up economies
			Box 1.4. Short-term economic developments and prospects (OECD Economic Outlook, Spring 2008 projections for Turkey)
		Turkey is not yet perceived as a fully resilient economy
			Table 1.2. Potential factors behind Turkey’s external vulnerability
			Figure 1.15. Why Turkey is still perceived as a vulnerable economy - international comparisons
			Table 1.3. Sovereign credit ratings and vulnerability indicators
			Figure 1.16. Gross official reserves and credit growth
			Figure 1.17. External debt indicators
			Figure 1.18. Gross external debt stock under alternative scenarios
			Figure 1.19. Estimated and actual sovereign ratings for Turkey
	Fiscal reforms (Chapter 2)
	Monetary policy (Chapter 3)
	Structural reforms to strengthen the business sector (Chapter 4)
	Notes
	Bibliography
	Annex 1.A1. Selected recommendations of the 2006 OECD Economic Survey and national follow-ups
	Annex 1.A2. Gross external debt sustainability: methodology and assumptions
		Table 1.A2.1. Baseline assumptions for external debt scenarios
	Annex 1.A3. Estimating sovereign credit ratings for emerging markets
Chapter 2. Shifting to a pro-growth fiscal strategy
	Despite past achievements much remains to be done
		The monitoring of the fiscal stance is difficult
		Post-2001 fiscal consolidation has been spectacular but slippages occurred in 20075
			Figure 2.1. Recent fiscal developments
		Three main medium-term challenges for Turkish fiscal policy
	Reviewing the appropriate fiscal policy stance and anchor
		The nominal primary surplus benchmark has become too constraining
			Table 2.1. Turkey: Primary surplus required to maintain net public debt at 30% of GDP over the period 2007-15
			Figure 2.2. Net public debt stock under alternative scenarios
		A new anchor for fiscal policy should be adopted
			Table 2.2. Turkey: Primary surplus targets in the Medium-Term Fiscal Framework (MTFF)
	Spending reform challenges
		Pressures on public spending are likely to build up strongly over the medium- to long-term
			Figure 2.3. Education spending per student (2004)
			Figure 2.4. Pension system balances with and without reform
		Overall fiscal implications of catching up in key public services
			Table 2.3. Turkey, 2005-35: Long-term fiscal projections
		Functional spending priorities must be clarified
			Table 2.4. Government spending by functional classification, 2005 (or latest year available)
			Figure 2.5. General government spending on education, health and social security and welfare: an international comparison
		The effectiveness and cost-efficiency of public spending needs to be improved
			Table 2.5. Turkey: Progress with implementation of the Public Financial Management and Control Law
			Box 2.1. Civil service (pay) reform
				Figure 2.6. General government employment and compensation for selected OECD countries
			Box 2.2. Lessons from cross-country experiences with performance-based budgeting
			Box 2.3. Lessons from cross-country experiences with Public-Private Partnerships
	Tax reform challenges
		Tax distortions affecting growth and employment should be reduced
			Box 2.4. Likely fiscal costs of a significant cut in labour taxes
				Figure 2.7. Net fiscal costs of the labour tax reduction
		Tax enforcement should be strengthened and major tax loopholes closed
			Figure 2.8. Tax revenue comparisons, 2005
			Table 2.6. Actual and expected personal income tax liabilities in different professions
	Conclusions
		Box 2.5. Summary of recommendations for a growth-promoting fiscal policy
	Notes
	Bibliography
	Annex 2.A1. Net public debt sustainability scenarios: methodology and assumptions
		Table 2.A1.1. Assumptions for the constant fiscal stance scenario
	Annex 2.A2. Education performance – Turkey in international comparison
	Annex 2.A3. Health performance – Turkey in international comparison
	Annex 2.A4. Long-term baseline fiscal projections, 2005-35
Chapter 3. Monetary policy: facing the challenges
	The past history of high and chronic inflation
		Figure 3.1. Inflation rates in Turkey
	Post-2001 disinflation
		Box 3.1. The operational framework of inflation targeting
		Determinants of disinflation
			Figure 3.2. Productivity and real wage developments
			Figure 3.3. An estimation of the output gap
	Recent inflation inertia
		Table 3.1. Inflation targets and outcomes
		Box 3.2. Revision of inflation targets
			Table 3.2. Revised inflation targets
		Figure 3.4. Core inflation
		Figure 3.5. Components of inflation
		Figure 3.6. Goods and service prices
		Figure 3.7. Cumulative exchange rate pass-through to headline inflation
	The structural dilemma of economic policy
		The short term interest rate as the main monetary policy instrument
			Figure 3.8. The policy rate of the Central Bank and the market interest rate
			Figure 3.9. Yield curves
		Managing inflation expectations
			Figure 3.10. Inflation expectations
			Figure 3.11. Credibility gap
			Figure 3.12. Inflation forecasts and expectations
			Figure 3.13. Predictability of Central Bank’s policy decisions
			Box 3.3. An empirical assessment of the dynamics of inflation expectations in Turkey
				Figure 3.14. Changing influences on expectations - recursive coefficient estimates
		Responding to trend exchange rate appreciation
			Figure 3.15. Capital inflows
			Figure 3.16. Different measurements of real exchange rates
			Figure 3.17. Real exchange rates in selected countries
			Box 3.4. How overvalued was the Turkish lira in the period up to 2007?
				Figure 3.18. An estimation of the overvaluation of the real exchange rate until 2007
			Figure 3.19. Central Bank’s foreign exchange interventions and purchase auctions
			Box 3.5. The role of social dialogue in backing macroeconomic and monetary objectives
	Policy recommendations
		Box 3.6. Recommendations for a comprehensive monetary policy strategy
	Notes
	Bibliography
	Annex 3.A1. Experiences of other middle-income countries with capital inflows: lessons for Turkey
		Table 3.A1.1. Policy options to reduce the adverse effects of capital inflows
Chapter 4. Enhancing competitiveness by fostering the growth of the formal sector
	Performance divergences in the business sector have deepened
		Competitive versus declining sectors
			Figure 4.1. Performances of well-performing, squeezed and intermediary sectors, 2002-07
		Successfully restructuring firms in declining sectors have still limited weight
			Box 4.1. The slow adjustment of the textiles and clothing sector
				Table 4.1. Competitive standing of EU’s textiles and clothing suppliers
			Box 4.2. Modernisation in the leather industry
			Figure 4.2. Employment in the post-2001 period
			Figure 4.3. The vulnerability of the low-skilled, 2000-07
	The new government agenda to strengthen the business sector
		Box 4.3. Existing business sector incentives
		Additional tax measures
		Supporting the modernisation of small-and-medium sized firms
		More active utilisation of Organised Industrial Zones
			Box 4.4. The rapid growth of the shipbuilding cluster and its regulatory challenge
		Upgrading the supply of intermediary inputs
		Stabilising energy costs
			Figure 4.4. Electricity prices in industry
		The new employment package
			Table 4.2. Labour tax wedge before and after reforms
			Figure 4.5. Labour tax wedge for minimum wage earners before and after reforms
	Two top priorities in facilitating the growth of the formal sector
		Streamlining labour market rules
			Figure 4.6. The minimum wage limits labour demand in the formal sector1
		Accelerating the modernisation of corporate finance markets
			Box 4.5. The emerging role of the stock exchange as a funding source
	Managing transition from informality to formality
		Box 4.6. Lessons from Italy’s “regularisation” campaign in the 2000s
	Summary of recommendations
		Box 4.7. Policy recommendations: Enhancing competitiveness by fostering the growth of the formal sector
	Notes
	Bibliography
Glossary