The Chairman's Speech at the Assembly / 23 June 2010

Mr. Chairman, Distinguished Members of the Assembly and of the Press:

On behalf of the Board of Directors I would like to welcome you to our May assembly meeting. We would like to thank our distinguished guest, Prof. Dr. Ylter Turan, for so graciously accepting our invitation to be with us today. Welcome! We are going to listen to your comments with great interest. Esteemed members of the assembly:

Esteemed members of the Assembly:

Since our last assembly meeting we have again had another month packed with developments. One of the most important and regrettable of them, unfortunately, is that separatist terrorist activity has once again escalated in Turkey. We were shaken by the news of the treacherous attack in Istanbul before our pain from the soldiers lost in Hakkari had even abated. In the last two months our loss has been great. We have lost far too many soldiers. This is a situation that grieves all of us in the extreme. Losing our young men in this way is a great tragedy. Enduring such pain, bearing such a burden, both materially and, even more, spiritually is truly very difficult for a society. We ask God to have mercy on the souls of the fallen, and we extend our condolences to our entire nation, to their families especially.

The aim of terrorism is to break our morale, to defeat us as a people. We must therefore stand firm in the face of these traitorous attacks, we must not lose our inner strength. But it is clear that we must review our methods of fighting terrorism in all their ramifications.

Another unsettling development this month was the bloody raid Israel carried out on the ship, the Blue Marmara, and the unfortunate loss of nine of our citizens. This incident took Turkey-Israel relations, which had in any case been tense for some time, into a new dimension.

In yet another important development, the United National Security Council voted to impose new sanctions on Iran. Turkey, together with Brazil, voted ?no? on the resolution. Prior to the vote, Turkey had assumed an active role with Brazil on the Iran question. According to the latest reports however Brazil has withdrawn from the process. Following the strained relations with Israel and the Security Council vote, questions regarding Turkey?s foreign policy have arisen both at home and abroad, as we are all aware. Talk of a shift has intensified. While clearly rejecting such claims, the highest authorities in the administration are saying that Turkey is pursuing a multilateral foreign policy. As you know, some time ago we began to follow a more active foreign policy with our neighbors based on the principle of zero problems. We took important steps towards developing our relations with the countries in our neighborhood and in our region. I should point out that we welcome those steps, because, as we have been saying for years, our volume of trade with our neighbors was very low and definitely needed to be improved. It is important from the standpoint of developing our economy and our industry that we be able to garner a larger share of the market potential in our region

There is no doubt either that improving diplomatic relations is going to make a significant contribution to the development of economic and commercial relations. At the same time, following the collapse of the Soviet Union, the world is mired in uncertainty and suffering the birth pains of the establishment of a new world order. It is moving towards a multipolar, multicentered structure.

In such a climate, a new role devolves upon Turkey, a country with a deeply rooted past and an enormous potential for development that is also among the world?s twenty biggest economies. Not to assume that role - to miss that opportunity - would be a mistake of historic proportions. However is it also a fact that this period fraught with uncertainty also involves risks just as it presents opportunities. And caution is clearly in order.

Turkey has close cultural, historical, religious and ethnic ties with the countries in the region based on a deeply rooted past. We cannot turn our backs on those ties. At the same time our country also has extremely strong bonds with the West. We believe that Turkey must not be brought to the point of having to choose between East and West and should not provide any grounds for such a view. Turkey should be able to pursue her relations and her national interests along both axes as part of a balanced foreign policy.

We have a history going back more than half a century with the European Union, which has led now to the negotiation phase on Turkey?s membership. True, the European Union is currently experiencing one of the biggest convulsions in its history. The financial crisis that erupted in Greece and is now exhibiting a potential to spread all over Europe has reached a point that threatens the future of economic integration, which constitutes one of the basis props of the common currency, the euro, and of the union itself. In the circumstances, Europe is having difficulty uniting around a single policy and taking action. And the reflection of the economic crisis in the social and political arenas has deepened concerns for the future of the union. There are serious problems, but at the same time the EU overcame many such difficulties in the past and survived. In all probability it will shake these off as well.

We are reading nowadays that Europe?s wise men have recommended reform and renewal of the Union as a way out. Such renewal includes Turkey?s membership as well. And Turkey for its part should pursue its preparations without surrendering to fluctuations in the business cycle.

I have tried to put forward our approach to the subject of foreign policy in its main outlines. Our distinguished professor is now going to enlighten us in more detail with his comments and help us to take a broader view of the problem.

Esteemed members of the assembly:

As I said a little while ago, the European economy is going through some rough times. We see, however, that Turkey has weathered the crisis far better than the European economies. We have no debt crisis in the public sector, and our banking system is functioning without a hitch. Growth expectations are optimistic, the most important factor here being the positive trend in industrial output.

Together with the increase in April, production in our industry has risen now for five straight months since December 2009, up by 25.3% in December, 12.3% in January, 18% in February, 21.2% in March and 17% in April. These increases are extremely positive.

However, as we frequently point out, the base effect of the high rates of contraction in the same months last year should not be forgotten, nor the fact that the recent increases do not make up for last year?s losses.

If we remember that industrial production, which fell by 21.2% in the first four months of last year, rose by 17.2% in the first four months of this year, it is apparent that there is still somewhat of a problem when it comes to making up those losses. Furthermore, despite the increases, industrial production still remains below its pre-crisis level. The industrial production index, which was 91.5 on average in the first four months of 2009 when the crisis was at its worst, rose in the first four months of 2010 to 107.3. Before the crisis, in the first four months of 2008, the average index was 116.1. We are therefore still way below the pre-crisis level.

As we always say, compensating losses is important, but the real objective is to start adding production. In order for the economy to make the transition to growth in the real sense, it is essential that industrial production return to its pre-crisis level and then rise above that level.

If we were to make a forecast now for the months ahead: The rate of capacity utilization in manufacturing was 73.4% in May, the highest in the 19 months since November 2008.

A certain amount of additional inventory is responsible for the increase. Our industrialists are, as always, engaged in a struggle to boost their production. In the first half of the year, and with the contribution of last year?s base effect, things went well, but they are going to be more difficult in the second half when the base effect factor will gradually peter out. In order for the increase in production to continue and be permanent, it is of paramount importance that the requisite measures be taken.

Based on TurkStat figures, our exports were up by 11.3% in the first four months

Last year in the same period they fell by 27.5%. Therefore we have not yet managed to compensate our export losses. At the same time, imports in the first four months increased far more rapidly than exports at 36.6%, with the result that the foreign trade deficit widened by 152.8% and the current account deficit by 300% in the same period, both to record levels.

When it comes to public deficits, Turkey is in good shape, but these other two deficits have virtually become a structural characteristic of the Turkish economy and need to be monitored closely.

Prior to the crisis, a high rate of direct investment inflows made financing the current account easier. But in the first three months of the year net direct investment inflows dwindled by 50% on the previous year. Financing the current account aside, this is a very negative development in terms of unemployment.

Although there has been a relative improvement in the recent period, largely due to seasonal factors, unemployment remains our most fundamental problem. And the relative recovery in unemployment is moving far more slowly than the other indicators.

Investment is another area in which no improvement has been forthcoming.

Growth figures for the first quarter are going to be released at the end of this month. We hope those figures are going to offer us a more positive picture for the first quarter of this year in investment spending, which has been contracting for seven consecutive quarters. Because as long as investments don?t increase, it?s going to be very hard to make the recovery permanent. Another distortion in our economy that is a legacy from before the crisis is the high level of imports of intermediate goods. At the end of four months in which we saw a relative revival in production, we see that the share of intermediate goods in our total imports has risen from 70.7% to 72.4%. Again, at the end of the first four months, our total exports stand at 35.7 billion dollars and our imports of intermediate goods at 38.5 billion dollars. In other words. exports did not suffice to offset imports of the intermediate goods we need in order to produce.

We tried to draw attention to this situation before the crisis. Unfortunately, however, we see that this picture, which puts our own producers of inputs and our own workers in a difficult position, is continuing today. Indeed, it is a fact that besides the recovery there are significant risks and weaknesses. The negative developments in Europe have the potential to affect us as well. We can see that. At the same time, prescriptions should definitely be developed to treat the pre-crisis structural weaknesses. As I said earlier, things went well in the first half of the year but the second in all probability is going to be more difficult.

For example, our professional committees were fairly positive in their expectations in May on their industrial development index which is compiled every month, but there is a serious upset in June expectations.

I would like to emphasize that, yes, things are good for now, but if we allow ourselves to become complacent, if the requisite measures are not taken in time, we could be entering a period in which the increase in production gradually runs out of steam. For improvement in the economy to continue, attention must be on the economy. The economic should not be neglected despite a full agenda in domestic and foreign policy.

Nevertheless, as we have said so many times, Turkey can put her vision of becoming a regional and global power on a more firm footing through the success she achieves in the economy. Turkish industry and Turkish industrialists are engaged in that struggle. We are always saying that it is our expectation that our government will support our struggle with timely measures.

It is also a fact that in order to achieve the goal of being a regional and global power, it is essential that Turkey resolve her terrorism problem and staunch this bleeding wound. Our security forces and soldiers are putting their lives on the line and we are grateful to them. But it is clear that in the fight against terrorism, the results will not be sufficiently successful with the methods implemented up to now. As I said at the outset, these methods and the policies being pursued should be reviewed in all their dimensions.

We should determine where we are going wrong, what our shortcomings are, and be able to reverse those mistakes. All our institutions, all our political parties should rally together, above politics, to remedy this national problem and, with common sense, contribute to finally producing a solution.

Nevertheless, there is one fact that is indisputable, namely that during this process the greatest obligation and responsibility of course falls upon our government as the executive authority. This is a fact that cannot be covered up or denied. It is our expectation that our government - as a government that has put its stamp on Turkey over the last eight years and that we must regard as experienced - that our government will swiftly demonstrate the will to eliminate this problem at its root.

As I conclude my words, I would like to remember all our fallen soldiers once again with mercy and gratitude. With hope for a peaceful and prosperous Turkey that has achieved domestic tranquility and is making rapid progress along the road to economic development, I 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