Turkey to escape middle-income trap with new system: AK Party deputy chairman

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Ruling Justice and Development Party (AK Party) deputy chairman in charge of the economy Cevdet Yılmaz (L) said that efforts to establish institutional dynamism in the scope of the recent constitutional reform will have a positive effect on the economy in the long term, adding that Turkey will enjoy higher growth rates in the second half of the year as a result of increased economic activity amid the accuracy-based, well-timed initiatives of the government.

Responding to allegations that the AK Party is harming the very financial disciplines which have been deemed the secret to the party’s success over the past 15 years; namely, small and medium-sized enterprise (SME)-based initiatives such as the Credit Guarantee Fund, zero-interest loans and the postponement of certain taxes, the deputy chairman said that Turkey will stay within the limits of internationally recommended standards, underlining that the government remains determined to maintain its financial discipline.

Yılmaz stated that AK Party-based reforms over the years have aimed to consolidate the Turkish economy in the long run, rather than focusing on short-term, sporadic boosts. The deputy chairman also explained that the government’s top priority is to remove the middle-income trap, while stressing that the AK Party will continue to implement policies towards achieving this goal.

“When we do achieve this goal, the second step that was declared as the mission of the party at the AK Party congress will commence,” he said.

Daily Sabah: Firstly, what sort of reforms are you planning to make to rescue Turkey from the middle income trap?

Cevdet Yılmaz: In the last 15 years, Turkey has made a leap from the lower-middle income group to the upper-middle income group and yet another leap is required to reach the high-income group. This relies on the making of an economy which prioritizes know-how, efficiency and the production of commodities with high-added value.

Turkey has completely dissolved the tutelage system and consolidated the national will through the referendum of April 16; this is an important step in terms of escaping the middle income trap. A country riddled with the elements of the tutelage system, under the constant threats of coup and with a malfunctioning justice system can’t promote to the high income group. We have changed this.

On the other hand, in terms of technology, Turkey was spending 0.5 percent of its $230 billion GDP on research and development in 2002. Today, our gross domestic product is around $860 billion and the ratio of R&D expenditure is 1 percent. While it’s below what we desire, we are aiming to increase it to 3 percent with our 2023 and 2035 visions. Increased R&D expenditure by the private sector is crucial and we’re making some progress there. I believe Turkey is on the right track.

The integration between technology production, general production and the defense industry is definitely crucial. For this purpose, we are continuing to implement policies which contribute to cooperation between universities, industry and technology parks. Escaping the middle income trap is of high priority; we’ll continue to implement policies to achieve this goal. When we do achieve this, the second leap that was declared as the mission at the AK Party congress will commence.

DS: On the other hand, some are claiming that Turkey’s democracy regressed following the July 15 coup attempt and that the current Turkish democracy won’t be able to support the said second leap. What is your take on this subject?

CY: The July 15 coup attempt was a great betrayal and what transpired after the coup attempt definitely harmed Turkey’s economy and image. Furthermore, terrorist organizations like FETÖ and the PKK are well organized abroad and are lobbying against Turkey in international mechanisms.

For this reason, we perceive these kinds of pseudo-criticisms that are seemingly controlled from a center as attempts to defame Turkey. I believe criticisms towards Turkey’s democracy should be considered as just attempts of defamation.

Turkey has never relinquished its democratization vision; moreover, mottoes of the AK Party’s latest congress were democracy, change and reform. These essential concepts are the indicators of the AK Party’s mission to consolidate democracy, prioritize the people and increase participation of people to politics. These allegations are being made by those who don’t want Turkey to leap forward with democratic steps.

DS: What is your take on the announced 5 percent growth in the first quarter of 2017? How do you respond to the allegations that this is an unhealthy and unsustainable growth that relies on credit expansion?

We’ve realized a growth rate surpassing expectations; it’s the third largest growth among the G20 countries, right after China and India. Industrial production and export had an immense contribution to this growth rate; there is a significant increase in our production and production capacity. However, exports took the lead in this achievement, as almost half of this growth rate depended on it. Instead of producing wild allegations, everybody should be proud of this growth.

How was this realized? Despite last year’s coup attempt, we were able to grow significantly due to 15 years of reforms and regulations. The Justice and Development Party’s

(AK Party) reforms throughout the years aimed to consolidate Turkey’s economy in the long run, instead of spontaneous and short-lived boosts. As we can see now, the mentioned reforms enable Turkey to overcome negative political and economic developments. After the coup, Turkey declined only for a quarter; the following quarters indicated a growth, respectively 3.5 percent and 5 percent. I should underline that this is a tremendous performance which marks the staunchness of policies implemented to Turkey’s economy.

The government’s accurate and well-timed initiatives were also effective in this success; various supports and incentives along with tax reductions for small and medium-sized enterprises (SMEs) revitalized the economy.

Regarding the subject on the Turkish Statistical Institute’s (TÜİK) analysis, after a rather long process, the institutions revised Turkey’s national dividend calculations. It was done according to the international standards of (the European Union’s statistics agency) Eurostat. Moreover, calculations of past years were done retrospectively and certain figures were corrected. Nevertheless, the growth rate is independent of TÜİK’s analysis and it’s very real.

In terms of sustainability, it’s important to maintain your performance throughout subsequent quarters. The leading indicators estimate that the high growth rate will be maintained in the following quarters. We also foresee that the base effect will take place in the third quarter. As Turkey declined in the third quarter of 2016, we will observe the largest growth rate in that quarter; there is also a partial base effect in the fourth quarter. Turkey will be enjoying a high growth rate in the second half of the year due to increased economic activities and last year’s base rate. Hopefully, we will surpass the estimated 4.4 percent growth rate that is in our party program.

Stability, trust, economic predictability and reforms are also crucial components of sustainability. Turkey didn’t just provided economic revitalization packages; it simultaneously implemented political and economic reforms, the most recent one being the referendum of April 16. With the results, trust and stability is guaranteed in Turkey. The change in the system of governance ensures stability. Turkey has a bright future ahead. Governments that were able to secure at least 50 percent of the voters will administer the country for five years, while reforms will be implemented more swiftly due to the decline in bureaucratic processes. Similarly, economic decision making processes will be improved. In the midterm, this is my projection.

DS: Known as the Production Reform Package, a law consisting of 77 articles was approved at the general assembly of the Parliament. What changes is this law foreseeing?

CY: It’s the continuation of the previous reforms. As you know, economy is constituted by three main sectors: service, agriculture and industry. Industry is the locomotive sector; it contributes to 95 percent of total export. In this regard, industry is of utmost importance to us. The said package will decrease the costs for industry, increase competitiveness and relieve certain bureaucratic burdens of industrialists. It includes tax reduction, supports and incentives. Moreover, this law also applies to industry parks.

DS: Certain harmonization laws for the implementation of the presidential system are being discussed. In this respect, what will change in economy? How will the economy be administered in the new system?

CY: Turkey is currently in a state of transition; the process is not complete yet. Currently, the system is a party-member presidential system. This transition process will be fully implemented in 2019. After its implementation, bureaucracy and institutional structures will be overhauled. Firstly, the president will replace the prime minister and become the head of government. The main goal of this implementation is to have a clockwork system without hiccups and malfunctions. For this reason, the president will have the right to pass executive orders from 2019 onwards. Therefore, it will be much easier to implement reforms.

Furthermore, the elected president will be able to form and merge ministries along with redesigning departments within these ministries. This, in turn, will increase Turkey’s institutional dynamism. What applies to bureaucracy will also apply for the economy; I believe this dynamism will also affect economy in a positive way. While it’s uncertain at the moment, I’m expecting a consolidated structure in economy with fewer departments that will have increased coordination among them.



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