Turkish economy on the mend

This, he said, demonstrated the effectiveness of the IMF backed economic programme the country has been following since the financial crisis two years ago.

In 2001, the Turkish lira halved in value overnight, interest rates soared and unemployment sky-rocketed after a major banking crisis. The country’s economy shrank by 9.4% that year.

Currency appreciation

Since May this year, the lira has appreciated 20% against the US dollar, interest rates have more than halved and both international & domestic investment has risen. Unemployment has also fallen to an historic low of 15%.

”It all indicates that the 2001 crisis is finally over,” said an analyst at Garanti Securities who declined to be named.

The strengthening lira has been good news for Turkey’s debt servicing. With most debt denominated in US dollars, the weakening dollar has lightened the country’s giant public debt burden which stands at $187 billion.

International confidence in the Turkish economy was further strengthened on 9 September when public sector workers called off a hunger strike aimed at securing higher annual pay awards.

Had the strike continued the government would likely have been forced to stray from the IMF’s strictly monitored stipulations.

Outstanding risks

Nevertheless, all this good news could be in jeopardy. Two political and international disputes threaten new found investor confidence.

The first of these is the latest chapter in the long running conflict surrounding Turkey’s ethnic Kurds, while the second is the US-led war in neighbouring Iraq.

On Monday, a Turkish court ruled that the country’s largest legal pro-Kurdish political party DEHAP had broken electoral rules during last year’s national vote.

Officials will now have to decide whether to annul the results of last November’s elections – along with all the legislation passed by the government since then. A fresh nation-wide ballot would then have to be held.