The Chairman's Speech at the Assembly / 23 January 2008
Mr. Chairman,Distinguished Members of the Assembly and of the Press,
On behalf of the Board of Directors I would like to welcome all of you to our December
assembly meeting. This year as always at our last meeting of the year we are going
to attempt to make an overall assessment of the year just past. As we enter 2008,
we are going to try to draw attention once again to the realities facing our economy
and our industry and, in particular, to our industry's seemingly insoluble problems.
Distinguished members of the assembly:
On behalf of the Board of Directors I would like to welcome all of you to our January
assembly meeting. Our guest today is Prof. Dr. Kenan Mortan. We would like to thank
him for accepting our invitation to join us. Welcome, sir!
Distinguished members of the assembly:
We are holding this first assembly meeting of 2008 at a time of relatively grave
uncertainty in the world economy. The major U.S. financial institutions recently
released their balance sheets. And the crisis in the housing market has thrown the
American economy into a deep crisis. There are rising concerns that the U.S. economy
could go into recession. There is increasing fear as well that a recession in the
world's biggest economy could impact negatively on the whole world. And worry is
mounting that the economic package announced by President Bush may fall short of
expectations.
At the beginning of this week falls of 6-7% were experienced in the world's stock
markets starting with those in Asia. Naturally Turkey was affected as well. The
Istanbul Stock and Securities Exchange suffered quite heavy losses and the exchange
rates again moved upwards.
The situation in Turkey and the rest of the world appears calm now following yesterday's
emergency decision by the American central bank, the 'Fed', to lower interest rates
by 75 base points. The exchange rates have come back down and the stock market has
begun to bounce back.
All these are encouraging signs. But there is no way of knowing in what direction
things are going to develop in the days ahead. The U.S. is trying to bring its economy
under control through radical measures. We don't know how successful it will be,
but we can see that there is a high risk that 2008 is going to be a difficult year.
The IMF, for example, warned in a written statement that a slowdown in global economic
growth is inevitable in 2008. The International Labor Organization, the ILO, issued
a similar warning in a report published just a few days ago.
If we consider that Turkey is becoming increasingly integrated with the global economy,
it is clear that global economic developments are inevitably going to continue to
affect us as well.
The contraction in liquidity more than anything else is one development that works
against us. At the same time, the slowdown in the U.S. economy and, related to it,
in the global economy is going to impact negatively on our exports. Our volume of
trade with the U.S. is unfortunately not very large. According to figures at the
end of the first 11 months of 2007, exports to the U.S. made up only 4% of Turkey's
total exports. The figure was higher in 2006 at 6% but has declined in 2007 due
to the fall in the dollar.
Looking at these figures, one might say that a recession in the U.S. is not going
to have much impact on our exports. As you know, however, fears of a recession have
already spread to Europe especially following the fall in the stock markets! Considering
that we make 56% of our total exports to the countries of the European Union, we
can foresee that our exports are indeed going to be adversely affected by a possible
recession in Europe.
Europe's financial institutions have not yet released their balance sheets for 2007.
It is therefore not yet known what sort of damage the credit squeeze has wreaked
in Europe, but the damage is not expected to be as great as that in the U.S. Furthermore,
there are views to the effect that the European economy is not going to be unduly
affected since it is not as dependent on the U.S. economy as it once was. We hope
that developments will unfold in such a way as to have a minimal effect on Turkey's
exports.
Distinguished members of the assembly:
As I said a short while ago, given the existing picture it would appear that there
is a heightened risk that 2008 will be a more difficult year than originally anticipated.
However, we also know that important gains have been made in the economy since 2001.
The Turkish economy is stronger now than it was in the past. There are always going
to be global fluctuations, the most recent example of which we experienced in May
2006.
We must be prepared for such fluctuations. Yes, we have our gains, and we are stronger
than before. But there is also a lot of fragility in our economy as well as areas
in which no improvement as been made. And, as we say at every opportunity, problems
with our competitiveness head the list of these areas.
To boost our resistance to external shocks, to fortify our position, and to avoid
experiencing palpitations at every blip, it is essential that Turkey solve these
problems. Measures to shore up competitiveness, exports, jobs, investments and production
and to facilitate the continuation of growth must be rapidly brought into play.
The difficult period into which we have entered makes it even more urgent that reforms
to improve competitiveness be effected as soon as possible. And the trends in the
economic indicators clearly confirm this urgency.
According to the figures of the Union of Exporters of Turkey, the rate of growth
in exports slowed in the last month of 2007. While export growth in the first 11
months was 23.5% on average, in December it fell to 7.7%. At the same time, there
is also a relative slowdown in inflows of direct investment. Net inflows of direct
investment, which were at 18.3 billion dollars at the end of the first 11 months
of 2006, came to 16.7 billion at the end of the corresponding period of 2007. Growth
too has slowed considerably on the same period a year ago. The growth rate, which
was 6.7% at the end of the first nine months of 2006, fell to 4% in the same period
of 2007. Industrial production in October and November was relatively high. With
production increases of 8.3% in October and 7.7% in November, the growth rate for
the last quarter could come out higher than expected. If it does, then the target
for 2007 could perhaps be met.
But we don't know what's going to happen in 2008! The negative trends in the economic
indicators, starting with growth, could be assumed to be temporary and periodic.
We also hope of course that that's how it's going to be and that the indicators
will soon begin to bounce back again. But, if the requisite measures are not taken,
there is a possibility that the trend will continue downwards, and we regard it
as our duty to draw attention to that possibility.
The last quarter slowdown in growth could be temporary, a result perhaps of the
current dry spell. But when we look at a larger slice of time, we can't ignore the
fact that growth has fallen every year since it peaked in 2004. If you will remember,
following the crisis in 2001 Turkey grew by 7.9% in 2002, 5.9% in 2003 and 9.9%
in 2004, after which growth rates began to decline. In 2005 we grew by 7.6% and
in 2006 by 6%. By the most optimistic estimates, growth in 2007 is going to be around
5%.
If this falling trend continues, we could go below 5% in 2008! Nevertheless, as
we always say, Turkey needs to grow by around 7-7.5% a year in order to solve her
problems and to close the gap with the European Union.
Yes, the Turkish economy has been growing for 23 consecutive quarters. This is truly
an important achievement! But our goal should be to grow at even higher rates! The
Turkish economy has serious problems with jobs and unemployment. As of October 2007
the unemployment rate was 9.7%. But when we add to the manifestly unemployed, the
idle labor force and those who can work but are not looking for jobs, as well as
seasonal workers, then the number of jobless exceeds five million and the unemployment
rate rises to 18.8%.
If we take a country's population aged fifteen and up as being of working age, and
then take the percentage of those employed within that population, we get that country's
rate of employment. Turkey's employment rate is 43.1%. Two worrying dimensions emerge
here. First, our employment rate in 1990 was 53.3%! In other words, Turkey rather
than improving her employment rate has actually brought it down in the last 18 years!
Second, in the countries of the European Union, in which we aspire to full membership,
the average rate of employment is 65%! In other words, 43% in Turkey and 65% in
the European Union! How are we going to close this enormous gap? Turkey has no choice
but to bring her employment rate up!
Distinguished members of the assembly: As I have said so many times, the reason
for the relative slowdown in growth and the problems in employment is that there
has been no improvement in our competitiveness even as the appreciation in the YTL
has become permanent. Under the circumstances, our industry has been forced to utilize
all the resources at its disposal in order to continue producing and to protect
its foreign markets. It has attempted to make the best possible use of its existing
employment capacity and under no circumstances to employ additional workers. It
has sacrificed its profitability!
In the name of shoring up its competitiveness, it has also been forced to turn to
imported inputs which have been made cheaper by the low exchange rates. This is
one of the reasons for Turkey's gaping foreign trade and current account deficits!
To reduce financing costs, industry has borrowed from abroad at the cost of incurring
risk. According to the latest figures, the real sector's volume of debt has risen
to 97 billion dollars. This in turn creates significant fragility in the economy.
It is our hope that a possible rise in the exchange rates will have as little impact
as possible on the balances in the economy and will take place in a gentle transition
spread out over time.
As another alternative in the struggle it is waging, our industry has also been
forced to shift its investments and production abroad, into countries where the
conditions of competition are more favorable. According to the latest figures, the
volume of net investment abroad by investors resident in Turkey was 841 million
dollars at the end of the first 11 months of 2006. In the comparable period of 2007
it rose by 137% to 1,992 million dollars.
Our industry is struggling to compete by resorting to such methods under the pressure
of intense global competition in a climate of cheap foreign currency and high interest
rates. And it has, in our opinion, come close to the end of the road. Indeed, it
is precisely at this point that the latest deterioration in global conditions occurred.
What Turkey needs to do at this juncture is to implement the requisite measures
with urgency, taking into account both its own internal dynamics and external change.
In such a period, the country, including all individuals and institutions starting
with the government and the managers of the economy, must be careful and cautious
and ever vigilant. We do not enjoy the luxury of losing time or making a mistake!
We must focus rapidly on the economy!
During this period Turkey must not let go of fiscal discipline and should continue
to battle inflation with resolve! And in the economy, the structural reforms that
we could say are our basic shortcoming should finally be completed! Measures to
reduce the current account deficit should be implemented without delay so as to
eliminate fragility in the economy.
Our Finance Minister gave a press conference this morning, pledging to stand firmly
behind the industrial sector, which has been the largest contributor to growth since
2002 - those were his exact words - and to provide special support to the country's
SME's through the new measures the government is going to take. As we see it, this
is exactly what needs to be done! The measures to be taken are clear and well known
to all. Indeed, beyond being known they are virtually known by heart!
We of the Istanbul Chamber of Industry have for a long time been giving expression
to the needs of our industry and of the real sector. So much so that our minister
this morning made statements covering everything that needs to be said and that
we were also thinking of saying. We are in complete agreement regarding the measures
that need to be taken and the path that needs to be followed in the face of this
latest fluctuation.
In any case, we always say that we have no problem with our government and the managers
of our economy when it comes to words. It is our greatest source of pride that the
Istanbul Chamber of Industry is a respected and well-established institution. From
time to time however that respectability and dignity lead to our being perceived
as having executive authority.
The Istanbul Chamber of Industry is not an executive power but a representative
body. What we can do is represent the problems of our industry and give expression
to them. We have no problem when it comes to that! The parties with authority for
solving those problems are obvious! And we hope that our government is rapidly going
to implement measures that will solve the problems of our industry. That they will
not only talk the talk but walk the walk. Perhaps then this turmoil in the global
economy will be turned into a plus, into an opportunity for solving our problems.
We expressed a similar hope during the fluctuation of 2006. It didn't happen then.
It must definitely happen this time. This is imperative for preserving the gains
in the economy and keeping Turkish industry afloat!
If, starting with social security, Turkey had effected structural reforms earlier,
she would be in a far better position today to stand up to global fluctuations.
Turkey's image as a country that inspires confidence must be strengthened!
At this point there is nothing to be done except to say that it's never too late
to cut our losses. At least let no further time be lost! Turkey must not be forced
to pay yet another price! As a country, and as Turkish industry, we hope we can
weather this difficult period unscathed.
I am certain that our esteemed professor is going to brief us about these latest
developments in detail and from a much broader perspective. And in this period of
hot developments we are going to listen even more carefully to what he has to say.
In closing I would like to salute you all once again on behalf of the board of directors.
C. Tanıl KÜÇÜK
Istanbul Chamber of Industry
Chairman of the Board of Directors