ABSTRACT
Introduction The post-2001 period has been described as one of the major turning points for the Turkish economy. The growth rate of GDP, which turned –3.7 percent in 1999 and 6.8 percent in 2000 showed a harsh slowdown to –5.7 percent in 2001. The resurgence of the economy out of the crisis has been quite sharp: the average growth rate was 7.5 percent per annum between 2002 and 2006. After almost four decades of high and persistent inflation, price movements were finally brought under control through the post-crisis adjustment policies reaching single-digit levels by 2005. The clear mandate to generate primary budget surpluses, reaching 6.5 percent as a ratio of the Gross National Product (GNP) has reduced the government debt burden down to 34 percent (public sector net debt stock/GDP) in 2006 from a level of 66.3 percent in 2001. High interest rates were conducive in keeping price movements under control, and at the same time have guaranteed an adequate share for international portfolio capital. The prevalence of an over-benevolent international capital market, especially for developing economies since 2003, definitely facilitated an atmosphere in which the Turkish economy could grow at rates much higher than the domestic savings would have allowed. Still, the most direct adverse effect of the surge in international portfolio flow over the post-2001 period has been felt in the foreign exchange market. Under the conditions of the (now) flexible exchange rate regime, the average rate of change of the nominal exchange rate (TRY/US dollar) over 2002-2007 stayed only around 1.6 percent. In fact the lira appreciated by as much as 55 percent in real terms against the dollar over 2002-2008 (Central Bank of the Republic of Turkey, General Statistics). Despite the rapid growth, lower rate of inflation and increased accessibility of foreign finance, Turkish macroeconomic circumstances have accumulated major vulnerabilities during the post-crisis era. The growth now seems to have lost acceleration,1 the overall macroeconomic balance and the growth potential of the economy are severely linked to the direction of international financial flows, hence it has been speculative-led2 in nature. Stimulated by the over-valued exchange rate as well as the hikes in supply-side prices3 the deficit in the current account reached a record-breaking level of 38.3 billion dollars (or about
6 percent of GDP) by the end of 2007. Closely associated with the nature of the international flows-led balance of payments, the stock of external debt increased by a total of 117.8 billion dollars over 2002-2007. Increasing its external debt from 43 billion dollars in 2002 to 158.2 billion dollars in 2007, the private sector has accounted for almost 98 percent of this overall upsurge in foreign indebtedness. Such critical changes in the macroeconomic environment have undoubtedly brought about major effects on the dynamics of the post-crisis era of the Turkish economy. One strong claim relates the structural over-valuation of the lira to the transformation of the production front of the economy. According to this claim, as the traditional manufactured exports lose their competitiveness, the advantage of low-cost imports has contributed to the emergence of new production and export lines.4 Yet, being highly import-dependent, such lines have been tagged with low capacity to generate value-added and employment.5 This chapter concerns itself with the analysis of the process of industrial restructuring and the new modes of articulation of the Turkish economy with the world markets in the post-2001 period. Since the period under consideration is assumed to be yet again a new phase of neo-liberal restructuring with a critical reshaping of the macro-economy, we try to emphasize the specificities of the ongoing transformation of the Turkish industries with reference to the role of the macroeconomic environment (vis-à-vis the industrial policy) in this process. To this end, we first provide a brief summary of industrial performance indicators for the post-crisis era. The results of an input-output decomposition analysis to identify the immediate response of the productive sectors of the economy to the structural break of 2001 are discussed next. We then analyze in detail the process of industrial restructuring with respect to the technological orientation of the manufacturing industry in the post-crisis period. The analysis is complemented by a case study on two industries, automobiles and consumer electronics, that played a very important role in the process of industrial restructuring. The tale of these two industries provides valuable information on the new forms of articulation with the world economy, and the accumulation of technological capabilities in Turkish manufacturing. Finally, we provide a summary of the main findings and policy options available for Turkey.
