The Chairman's Speech at the Assembly / 24 October 2007
Mr. Chairman, Esteemed members of the assembly, members of the press,
On behalf of the Board of Directors I would like to welcome all of you to our October
assembly meeting.
Our guest today is Professor Dr. Seyfettin Grsel. We would like to thank him for
so graciously accepting our invitation to join us. Welcome, Sir! We are very interested
in what you have to say.
Esteemed Members of the Assembly:
I would like first to give you some information regarding the progress of our Ankara
visits, which make up the main item on our agenda today. We started our visits by
holding talks with our President and with the Speaker of Parliament. Our Board of
Directors came together with the President of Turkey, Mr. Abdullah Gl, on 10 October
and later with the Speaker of Parliament, Mr. Kksal Toptan.
We conveyed our views on Turkish industry and the Turkish economy to the President.
We drew attention once again to the fact that solving the problems of our industry
would mean that our country would arrive more quickly at its goals. We also exchanged
views on the process of negotiations with the European Union and on the process
of amending the Constitution. Our talks with both the President and the Speaker
of Parliament were very productive and took place in a constructive atmosphere.
Turning now to our contacts with the Government, we would like to initiate them
by meeting first of all with the Prime Minister. We have not been able to do that
yet however due to his busy schedule. We are going to continue our Ankara visits
and come together with our government as soon as possible.
Esteemed Members of the Assembly:
It has been exactly three months since the general elections on 22nd July. Three
months of intensive politicking in Turkey as the new government was formed, the
President elected, the new constitution debated, and the referendum held.
At the end of those three months, no concrete progress has yet been achieved regarding
the urgent measures that need to be taken in the economy. An emergency action plan
was announced on 9 October. Forty-eight of the 73 activities envisaged in the plan
fall under the heading of boosting Turkey?s competitiveness. It is an encouraging
number in that respect. But it is also distressing as a sign of how lacking we are
when it comes to competitiveness!
Given these circumstances and the fact that there is also no improvement in other
conditions related to competitiveness, the YTL, overvalued in any case, has gained
further and the competitiveness of our industry further declined.
As we said earlier, the exchange rate today has reached a point that is intolerable
from the standpoint of competitiveness. If we take 1995 = 100, then the real exchange
rate index based on the WPI rose to an historic high of 174.6 in February 2006.
We see that the index rose even higher in September 2007 to 178.9. The over-valuation
of the YTL is plain for all to see! This rise in the index means that the competitiveness
of our industry has fallen even lower than it was in February 2006.
Esteemed Members of the Assembly:
Driven by its success in exports, our industry enjoyed a period of rapid growth
after the 2001 crisis and became the engine of growth in the economy. In 2002, 2003
and 2004, annual growth in industrial production in Turkey was over 9%. Unfortunately,
however, this successful performance was short-lived, and in 2005 annual growth
in industrial production fell again to around 5%. Growth in industrial production
was 5.4% in 2005 and 5.8% in 2006. At the end of the first eight months of 2007
it stood at 5.3%.
As you can see, 2005 was a watershed for industrial production in Turkey. The failure
to sustain growth of around 9% was a great loss, both for our industry and for our
economy. As we see it, the fundamental reason for that failure is the continuous
appreciation in the YTL and the delay in effecting the structural reforms that would
improve Turkey? competitiveness.
When we look at the WPI-based real exchange rate index I mentioned a little earlier,
we see that it has risen steadily month by month since January 2005, first to around
150 and then to 160 and 170 in subsequent months. And parallel with the rise in
the index. a relative slowdown emerged in the rate of growth in industrial production.
In the same period, however, countries in the same category with us also grew, and
some of them chalked up even better performances than we did. What more, while the
ratio of our current account deficit to GNP in 2006 broke a record at 8.2%, Brazil,
China and Russia actually had current account surpluses. This picture leads us to
believe that Turkey might have achieved far better results if the obstacles to our
competitiveness could have been removed.
Despite the relative slowdown in growth and the widening in the current account
deficit, Turkey in that period increased her exports and achieved a success beyond
that of the other countries in the same category.
The period from 2000 to 2006 would appear to have been our most successful so far
in terms of foreign trade as exports rose by 31% in 2003, 33.7% in 2004, 16.3% in
2005 and 16.4% in 2006. As you see, 2005 and 2006 emerge as the years when appreciation
in the YTL became permanent and average annual growth in exports, as in production,
fell in relative terms.
Performance in 2007 on the other hand was better than in the two previous years.
Exports at the end of the first nine months of this year are up by 23.5% on the
same period last year. The main reason for this is that our industry turned to exports
on a major scale in 2007 when domestic demand dried up following the fluctuation
in May 2006.
Nevertheless this growth in 2007, when the YTL further appreciated, was achieved,
and is being achieved, at the cost of a sharp fall in profitability, indeed, from
time to time, by selling at a loss in the name of protecting our foreign markets.
Our industrialists are succeeding in sustaining that export growth by gritting their
teeth and boosting their productivity. How long can that success be sustained under
such conditions?
Despite all the difficulties, Turkey? exports over the last year exceeded 100 billion
dollars. Not only that, but there has been an encouraging development in the structure
of our exports as well. While the share of investment goods and durable and semi-durable
consumer goods in our exports was only 8.3% in 1990, at the end of the eighth month
of 2007 it had risen to 38.6%
If we look at exports on a sub-sector basis, we see that between 1990 and 2007 the
share of machinery and equipment rose from 1.8% to 8%, that of electrical and electronic
equipment from 3.1% to 6.9%, and that of the automotive industry from 1.7% to 19.5%.
As a harbinger of structural change in our exports and our industry these figures
are extremely noteworthy and significant.
It is essential that Turkey appreciate the importance of this development. This
is an historic opportunity that needs to be properly exploited. The drive to structural
change must be sustained and accelerated.
Esteemed Members of the Assembly:
As we always insist, Turkey has no choice but to grow, without interruption and
at high rates! We can solve all our economic and social problems, starting with
employment. This depends on our reducing the distance between us and the European
Union to reasonable levels. And we know that industry is the engine of growth in
the Turkish economy! So, the thing to do is to clear the path for industry, production
and exports!
Aware of that fact, the government and managers of the economy should demonstrate
the requisite will!
As you know, Turkey for a long time has been the country paying the highest interest
rates in the world! High interest attracts hot money. And the more foreign currency
that comes in, the lower the exchange rates fall.
This has been going on for the last five years. As I just tried to explain, as the
exchange rates fall, the rate of growth in production declines as well, importing
becomes more attractive than producing, imports of intermediate goods rise, jobs
are lost, our industrialists borrow at the cost of incurring risk since financing
costs are so high, and the current account deficit spirals out of control!
Yes, low exchange rates aid the fight against inflation, but they also create enormous
gaps in other areas of the economy. Under the circumstances, our central bank is
extremely conservative when it comes to lowering interest rates. Why doesn?, why
can?, the central bank bring interest rates down? What? the problem?
We should point out that we are aware of the fact that the main job of the central
bank is to ensure and sustain price stability. We also agree that it is essential
to continue the fight against inflation with resolve. And we understand that the
central bank has to preserve its prudent and cautious stance as long as the economy
remains fragile. However, we cannot accept that it should remain indifferent to
problems in production, jobs, exports and competitiveness. Our industry cannot simply
be abandoned to its fate!
I would like to point out here that while the central bank is a very important factor
we do not regard it as the sole party with responsibility for solving these problems.
Lowering interest rates and exchange rates to the levels we would like to see does
not mean that our competitiveness problems would be over. Besides high interest
rates and low exchange rates, the other negative factors that sap our competitiveness
must certainly be improved as well.
The government and managers of the economy should bring into play new instruments
for shoring up Turkey? exports. Structural reforms should be delayed no longer and,
as we always say, the responsibility for this falls on our government.
Nevertheless, even our central bank has cited the delay in structural reforms as
one of the reasons why it keeps risk perception high and takes such a conservative
approach to lowering interest rates.
It is impossible to ensure the desired level of improvement in competitiveness without?first
effecting the structural reforms that will improve the climate for investment, production,
exports and jobs. Can our competitiveness ever be as strong as we would like it
to be unless we first eliminate the problems that stem from the tax system, the
black economy, the cost of energy and the onerous burden on employers?
It is essential in this sense that our government make good use of the two remaining
months of 2007 and of 2008. There is no question that achieving comprehensive structural
reforms is not easy. It is unthinkable, however, that a government that enjoys the
favor of close to half the population would have trouble summoning up the courage
and determination required for effecting structural reforms. Two thousand and eight
must be a year in which interest rates fall and structural reforms are realized.
What? more, 2008 should also be a year when the current account deficit, albeit
a bit in the shadows at present, begins to be brought down to tolerable levels.
Let us not forget that financing the current account deficit and sustaining growth
require that interest rates be kept high and the foreign exchanges low.
At the same time, 2008 must be a year in which fiscal discipline is maintained without
compromise. The fight against inflation cannot be waged without fiscal discipline.
At this point I would like to clarify something concerning us industrialists. What
I have said here should not be construed to mean that we are abdicating all responsibility
for the competitiveness of our industry to the government and managers of the economy.?As
we always say, our industry is well aware of the responsibility it bears for boosting
its own competitiveness. It strives continuously to increase its productivity and
to develop its capacity for R and D and development of technology as well as its
capacity for innovation, design and creating brands.
Esteemed members of the assembly:
In a few days we will celebrate the 85th anniversary of our Republic. We have shortcomings,
yes, but we have accomplished many things in the last 84 years. The Republic of
Turkey grew by an average of 4.6% a year between 1923 and 2006.
While value added in the agricultural sector increased by 10.5 times and in the
services sector by 60.7 times in fixed prices during this period, value added in
the industrial sector multiplied 183 times over! As you see, industry has made the
biggest contribution towards Turkey? arriving at the point it has today in the production
of goods and services. We industrialists are very proud of the contribution we have
made to the development of our Republic.?And we are striving with all our might
to increase the contribution we make to create a richer, happier and more democratic
Turkey.
In the years ahead our Republic must continue to grow by an average of 4.6% a year.
This target can only be reached with an industry that is highly competitive. For
that reason we would like the obstacles we face to be eliminated and priority to
be given to solving the problems of our industry.
Mr Chairman,
Esteemed Members of the Assembly:
Unfortunately our Republic also has its detractors! Dark, treasonous forces that
are trying to divide our Republic and keep it from developing.
Counting the 12 soldiers recently killed in Hakkari, we have lost thirty members
of our security forces in the last month. And unfortunately the fate of the eight
soldiers that have disappeared is not yet clear.
We ask God to have mercy on those who have died, and we offer our heartfelt condolences
to their families. We as a nation share their pain, and we therefore offer our condolences
to the whole nation as well.
Turkey has been trying to come to terms with the plague of terrorism for almost
25 years. We know that this is not an easy struggle. But the price we are paying
has reached intolerable proportions.
This problem must finally be solved once and for all! From now on, Turkey must resolutely
continue her struggle with terrorism, using common sense, without compromising her
integrity in any way, by keeping her morale high, and through policies that are
comprehensive and rational in every respect. And this situation must finally be
brought to an end.
We know that the terrorists and their abettors will never achieve their aims!
Integral and undivided, the Republic of Turkey is going endure forever on these
lands with a modern, democratic, and secular structure.
It is with such feelings that I wish all of you a Happy Republic Day on 29 October
and 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