THE TURKISH ECONOMY is being transformed in the 1990s from a state-led to a market-oriented economy. As in most economies undergoing market reforms, the process of change has caused severe internal dislocations. External economic "shocks" such as the Persian Gulf War of 1991 and the resulting United Nations (UN) embargo on Iraq have complicated the transition.
The Turkish economy's ongoing and turbulent reorientation has left the economy a study in contrasts. Modern industries coexist with pockets of subsistence agriculture. The major cities of western Anatolia are cosmopolitan centers of industry, finance, and trade, whereas the eastern part of the country is relatively underdeveloped. Several decades of state planning followed by economic liberalization have made industry Turkey's leading economic sector, even as most Turks continue to work on farms. Industry has undergone a fairly rapid transformation as a consequence of the far-reaching market reforms implemented in the 1980s and early 1990s. Despite the reforms, however, public enterprises continue to dominate raw-materials processing and the manufacture of heavy industrial and military goods. The smaller firms that dominate the private sector produce intermediate and consumer goods for domestic and foreign markets. The services sector is perhaps the most diverse, embracing large export-oriented marketing groups and world-scale banks as well as small shops and individual domestic workers.
To a large extent, the last 200 years in Turkey have been marked by its rulers' attempts to transform it into a modern European industrial nation. The Ottoman Empire encountered serious economic problems beginning in the eighteenth century with the imposition of unequal treaties, the capitulations (see Glossary), which affected trade and taxation. The tanzimat (reorganization) reforms of 1839-78, an important component of which was the reorientation of the economy toward development of an indigenous industrial base, led to deepening indebtedness to Western imperial powers by the end of the nineteenth century. This dependence on the West, which was seen as one of the main causes of Turkey's "backwardness," created the context for the economic policy of the new republic formed in 1923. The other important influence on the new leaders of the republic was the example of state planning in the Soviet Union. Given these influences, state planning was the route Turkey's new leaders took to modernize the country.
From the 1930s until 1980, the state pursued import-substitution industrialization by means of public enterprises and development planning. This policy created a mixed economy in which industrial development was rapid. However, during the post-World War II period the drawbacks of excessive state intervention became ever more apparent to policy makers and the public. State enterprises, which came to account for about 40 percent of manufacturing by 1980, were often overstaffed and inefficient; their losses were a significant drain on the government budget. State planning targets were often excessively ambitious, yet they neglected such essential sectors as agriculture. Concentration on import substitution deemphasized exports, resulting in chronic trade deficits and a pattern in which periods of rapid growth, financed in part by foreign borrowing, led to balance of payments crises that necessitated austerity programs.
The rapid transition from an agricultural to an industrial society also produced distortions in the country's labor markets and led to unequal income distribution. As was the case in most developing countries, there was a high birth rate, which contributed to unemployment in the postwar period by causing the labor force to grow rapidly. In addition, the modernization of agriculture tended to make small farms economically nonviable. As a result, many rural people migrated to urban areas. Those who left farming, however, often lacked skills needed in modern industry and could find employment only in the informal sector of the urban economy. Meanwhile, industrial enterprises became more capital intensive, which increased productivity but reduced the demand for unskilled labor. At the same time, firms had trouble recruiting skilled employees.
In January 1980, the Turkish government undertook a major reform program to open the Turkish economy to international markets. Leading the reform was Turgut Özal, then deputy prime minister and minister for economic affairs. Özal became prime minister in 1983, following a three-year military regime, and served as president from 1989 until his death in 1993. Özal's reform program included a reduced state role in the economy, a realistic exchange rate and realistic monetary policies, cutbacks on subsidies and price controls, and encouragement of exports and foreign direct investment. During its early years, the liberalization program achieved considerable success in reducing external deficits and restoring economic growth. Despite significant foreign direct investment during the 1980s and early 1990s, however, Turkey's balance of payments remained burdened by an external debt of more than US$65 billion at the end of 1993. A balance of payments crisis occurred in 1994 in the aftermath of a domestic political crisis in the wake of deep divisions within the administration over economic policy and a sharp decrease in exports to Turkey's beleaguered neighbors, Iraq and Iran. This situation led to a steep fall in the Turkish lira (TL; for value of the lira--see Glossary).
The success of the Özal program was predicated on developing satisfactory relationships with the country's economic partners and continued access to export markets. Rapid development required large capital imports because domestic savings were insufficient for needed investments. Foreign investors, attracted by Turkey's great economic potential and increasingly liberal economic policies, made major commitments to infrastructure projects during the mid-1980s. However, continued high inflation, as well as memories of the political instability of the late 1970s, caused investors to hesitate. These insecurities were heightened after the Iraqi invasion of Kuwait in 1990, the rise of strong Islamist (sometimes seen as fundamentalist) parties in the early 1990s, and persistent macroeconomic problems.
Whatever short-term difficulties Turkey faces, most observers believe the country's long-term economic prospects are good. Mining and agriculture provide raw materials for industry, and the growing and resourceful population provides abundant labor. Turkey is one of the few countries that is self-sufficient in food; indeed it can export food to European and Middle Eastern markets. Economic reforms have led to increases in exports of processed foods, textiles, motor vehicles, and consumer durables. Considerable investments in tourism, the revitalization of banking, and upgraded transportation facilities should allow Turkey to compete in the international services market in the 1990s.
Turkey has made great strides toward building close economic ties with Europe, and Turkey's leaders have promoted the country as a vital link between the industrial economies of Europe and the underdeveloped economies of the Middle East and Central Asia. On several fronts, however, Turkey suffered a number of setbacks in the early 1990s. A critical one was the embargo on Iraq. Because of it, Turkey lost a huge export market as well as fees for allowing Iraqi oil to pass through a pipeline on Turkish territory. In addition, Iran, a major trading partner in the 1980s, reoriented its trade directly with Europe and Asia in the late 1980s and early 1990s. Early expectations for commerce with the Central Asian countries have gone unfulfilled because of the economic and social dislocations they have suffered in breaking away from the Soviet Union. Worst of all, Turkey's political relations with Europe have deteriorated, mainly because of human rights abuses of its Kurdish population and increasing intolerance in Europe of Turkish immigrants. As a result, Turkey's accession to the European Union (EU--see Glossary) appeared increasingly unlikely to happen as targeted in 1995, despite its having been an associate member since 1963 of the EU's predecessor body, the European Community (EC--see Glossary), and having applied for full membership in 1987.
At the time of the collapse of the Ottoman Empire during World War I, the Turkish economy was underdeveloped: agriculture depended on outmoded techniques and poor-quality livestock, and the few factories producing basic products such as sugar and flour were under foreign control. Between 1923 and 1985, the economy grew at an average annual rate of 6 percent. In large part as a result of government policies, a backward economy developed into a complex economic system producing a wide range of agricultural, industrial, and service products for both domestic and export markets.
At the birth of the republic, Turkey's industrial base was weak because Ottoman industries had been undermined by the capitulations. World War I and the War of Independence (1919-22) also had extensively disrupted the Turkish economy. The loss of Ottoman territories, for example, cut off Anatolia from traditional markets. Agricultural output--the source of income for most of the population--had dropped sharply as peasants went to war. Even the production of wheat, Turkey's main crop, was insufficient to meet domestic demand. In addition, massacres and the emigration of Greeks, Armenians, and Jews, who had dominated urban economic life, caused a shortage of skilled laborers and entrepreneurs.
Turkey's economy recovered remarkably once hostilities ceased. From 1923 to 1926, agricultural output rose by 87 percent, as agricultural production returned to prewar levels. Industry and services grew at more than 9 percent per year from 1923 to 1929; however, their share of the economy remained quite low at the end of the decade. By 1930, as a result of the world depression, external markets for Turkish agricultural exports had collapsed, causing a sharp decline in national income. The government stepped in during the early 1930s to promote economic recovery, following a doctrine known as etatism (see Glossary). Growth slowed during the worst years of the depression but between 1935 and 1939 reached 6 percent per year. During the 1940s, the economy stagnated, in large part because maintaining armed neutrality during World War II increased the country's military expenditures while almost entirely curtailing foreign trade.
After 1950 the country suffered economic disruptions about once a decade; the most serious crisis occurred in the late 1970s. In each case, an industry-led period of rapid expansion, marked by a sharp increase in exports, resulted in a balance of payments crisis. Devaluations of the Turkish lira and austerity programs designed to dampen domestic demand for foreign goods were implemented in accordance with International Monetary Fund (IMF--see Glossary) guidelines. These measures usually led to sufficient improvement in the country's external accounts to make possible the resumption of loans to Turkey by foreign creditors. Although the military interventions of 1960 and 1971 were prompted in part by economic difficulties, after each intervention Turkish politicians boosted government spending, causing the economy to overheat. In the absence of serious structural reforms, Turkey ran chronic current account deficits usually financed by external borrowing that made the country's external debt rise from decade to decade, reaching by 1980 about US$16.2 billion, or more than one-quarter of annual gross domestic product (GDP--see Glossary). Debt-servicing costs in that year equaled 33 percent of exports of goods and services.
By the late 1970s, Turkey's economy had perhaps reached its worst crisis since the fall of the Ottoman Empire. Turkish authorities had failed to take sufficient measures to adjust to the effects of the sharp increase in world oil prices in 1973-74 and had financed the resulting deficits with short-term loans from foreign lenders. By 1979 inflation had reached triple-digit levels, unemployment had risen to about 15 percent, industry was using only half its capacity, and the government was unable to pay even the interest on foreign loans. It seemed that Turkey would be able to sustain crisis-free development only if major changes were made in the government's import-substitution approach to development. Many observers doubted the ability of Turkish politicians to carry out the needed reforms.
In January 1980, the government of Prime Minister Süleyman Demirel (who had served as prime minister 1965-71, 1975-78, and 1979-80) began implementing a far-reaching reform program designed by then Deputy Prime Minister Turgut Özal to shift Turkey's economy toward export-led growth.
The Özal strategy called for import-substitution policies to be replaced with policies designed to encourage exports that could finance imports, giving Turkey a chance to break out of the postwar pattern of alternating periods of rapid growth and deflation. With this strategy, planners hoped Turkey could experience export-led growth over the long run. The government pursued these goals by means of a comprehensive package: devaluation of the Turkish lira and institution of flexible exchange rates, maintenance of positive real interest rates and tight control of the money supply and credit, elimination of most subsidies and the freeing of prices charged by state enterprises, reform of the tax system, and encouragement of foreign investment. In July 1982, when Özal left office, many of his reforms were placed on hold. Starting in November 1983, however, when he again became prime minister, he was able to extend the liberalization program.
The liberalization program overcame the balance of payments crisis, reestablished Turkey's ability to borrow in international capital markets, and led to renewed economic growth. Merchandise exports grew from US$2.3 billion in 1979 to US$8.3 billion in 1985. Merchandise import growth in the same period--from US$4.8 billion to US$11.2 billion--did not keep pace with export growth and proportionately narrowed the trade deficit, although the deficit level stabilized at around US$2.5 billion. Özal's policies had a particularly positive impact on the services account of the current account. Despite a jump in interest payments, from US$200 million in 1979 to US$1.4 billion in 1985, the services account accumulated a growing surplus during this period. Expanding tourist receipts and pipeline fees from Iraq were the main reasons for this improvement. Stabilizing the current account helped restore creditworthiness on international capital markets. Foreign investment, which had been negligible in the 1970s, now started to grow, although it remained modest in the mid-1980s. Also, Turkey was able to borrow on the international market, whereas in the late 1970s it could only seek assistance from the IMF and other official creditors.
The reduction in public expenditures, which was at the heart of the stabilization program, slowed the economy sharply in the late 1970s and early 1980s. Real gross national product (GNP--see Glossary) declined 1.5 percent in 1979 and 1.3 percent in 1980. The manufacturing and services sectors felt much of the impact of this drop in income, with the manufacturing sector operating at close to 50 percent of total capacity. As the external-payments constraint eased, the economy bounced back sharply. Between 1981 and 1985, real GNP grew 3 percent per year, led by growth in the manufacturing sector. With tight controls on workers' earnings and activities, the industrial sector began drawing on unused industrial capacity and raised output by an average rate of 9.1 percent per year between 1981 and 1985. The devaluation of the lira also helped make Turkey more economically competitive. As a result, exports of manufactures increased by an average rate of 45 percent per annum during this period.
The rapid resurgence of growth and the improvement in the balance of payments were insufficient to overcome unemployment and inflation, which remained serious problems. The official jobless rate fell from 15 percent in 1979 to 11 percent in 1980, but, partly because of the rapid growth of the labor force, unemployment rose again, to 13 percent in 1985. Inflation fell to about 25 percent in the 1981-82 period, but it climbed again, to more than 30 percent in 1983 and more than 40 percent in 1984. Although inflation eased somewhat in 1985 and 1986, it remained one of the primary problems facing economic policy makers.
Turkey benefited economically from the Iran-Iraq War (1980-88). Both Iran and Iraq became major trading partners, and Turkish business supplied both combatants, encouraged by government export credits. With limited access to the Persian Gulf, Iraq also came to depend heavily on Turkey for export routes for its crude oil. Iraq had financed two pipelines located next to one another from its northern Kirkuk oilfields to the Turkish Mediterranean port of Çeyhan, slightly northwest of Iskenderun. The capacity of the pipelines totaled around 1.1 million barrels per day (bpd). Not only did Turkey obtain part of its domestic supplies from the pipeline, but it was paid a sizable entrepôt fee. Some sources have estimated this fee at US$300 million to US$500 million.
Turkey's economy was battered by the 1991 Persian Gulf War. The UN embargo on Iraq required the ending of oil exports through the Çeyhan pipelines, resulting in the loss of the pipeline fees. In addition, the economy may have lost as much as US$3 billion in trade with Iraq. Saudi Arabia, Kuwait, and the United Arab Emirates (UAE) moved to compensate Turkey for these losses, however, and by 1992 the economy again began to grow rapidly.
The Turkish economy again was plunged into crisis in 1994. The central government's moves in 1992 and 1993 to grant large salary increases to civil servants and to increase transfers to state enterprises enlarged the public-sector borrowing requirement to a record 17 percent of GDP in 1993. This high government spending sharply boosted domestic demand's rate of growth to 6.4 percent in 1992 and 7.6 percent in 1993. In turn, inflation rates went up, with the annual rate peaking at 73 percent in mid-1993. The resulting rise in the real exchange rate translated into increased imports and slowed the expansion of exports. The trade deficit rose in 1993 to US$14 billion, while the current account deficit reached US$6.3 billion, or 5.3 percent of GDP.
Turkey's impressive economic performance in the 1980s won high marks from Wall Street's credit-rating agencies. In 1992 and 1993, the government used these ratings to attract funds to cover its budget deficits. International bond issues over this period amounted to US$7.5 billion. These capital flows helped maintain the overvalued exchange rate. In a market economy, a high level of government borrowing should translate into higher domestic interest rates and even possibly "crowd out" private-sector borrowers, thereby eventually slowing economic growth. But the government's foreign borrowing took the pressure off domestic interest rates and actually spurred more private-sector borrowing in an already overheated economy. Sensing an easy profit opportunity during this period, commercial banks borrowed at world interest rates and lent at Turkey's higher domestic rates without fear of a depreciating currency. As a result, Turkey's foreign short-term debt rose sharply. External and internal confidence in the government's ability to manage the impending balance of payments crisis waned, compounding economic difficulties.
Disputes between Prime Minister Tansu Çiller (1993- ) and the Central Bank governor undermined confidence in the government. The prime minister insisted on monetizing the fiscal deficit (selling government debt instruments to the Central Bank) rather than acceding to the Central Bank's proposal to issue more public debt in the form of government securities. The Central Bank governor resigned in August 1993 over this issue. In January 1994, international credit agencies downgraded Turkey's debt to below investment grade. At that time, a second Central Bank governor resigned.
Mounting concern over the disarray in economic policy was reflected in an accelerated "dollarization" of the economy as residents switched domestic assets into foreign-currency deposits to protect their investments. By the end of 1994, about 50 percent of the total deposit base was held in the form of foreign-currency deposits, up from 1 percent in 1993. The downgrading by credit-rating agencies and a lack of confidence in the government's budget deficit target of 14 percent of GDP for 1994 triggered large-scale capital flight and the collapse of the exchange rate. The government had to intervene by selling its foreign-currency reserves to staunch the decline of the Turkish lira. As a result, reserves fell from US$6.3 billion at the end of 1993 to US$3 billion by the end of March 1994. Before the end of April, when the government was forced to announce a long-overdue austerity program following the March 1994 local elections, the lira had plummeted by 76 percent from the end of 1993 to TL41,000 against the United States dollar.
The package of measures announced by the government on April 5, 1994, was also submitted to the IMF as part of its request for a US$740 million standby facility beginning in July 1994. Measures included a sharp increase in prices the public-sector enterprises would charge the public, decreases in budgetary expenditures, a commitment to raise taxes, and a pledge to accelerate privatization of state economic enterprises (SEEs). Some observers questioned the credibility of these measures, given that the tax measures translated into a revenue increase equivalent to 4 percent of GDP and the expenditure cuts were equivalent to 6 percent of GDP.
The government actually succeeded in generating a small surplus in the budget during the second quarter of 1994, mainly as a result of higher taxes, after running a deficit of 17 percent of GDP in the first quarter. The slowdown in government spending, a sharp loss in business confidence, and the resulting decline in economic activity reduced tax revenues, however. The fiscal crisis resulted in a decline in real GDP of 5 percent in 1994 after the economy had grown briskly in 1992 and 1993. Real wages also fell in 1994: average nominal wage increases of 65 percent were about 20 percent below the rate of consumer price inflation.
Analysts pointed out that despite the fragility of the macroeconomic adjustment process and the susceptibility of fiscal policy to political pressures, the government continued to be subject to market checks and balances. Combined with a stronger private sector, particularly on the export front, the economy was expected to bounce back to a pattern of faster growth.
In the years after World War II, the economy became capable of supplying a much broader range of goods and services. By 1994 the industrial sector accounted for just under 40 percent of GDP, having surpassed agriculture (including forestry and fishing), which contributed about 16 percent of production. The rapid shift in industry's relative importance resulted from government policies in effect since the 1930s favoring industrialization (see fig. 8). In the early 1990s, the government aimed at continued increases in industry's share of the economy, especially by means of export promotion.
Services increased from a small fraction of the economy in the 1920s to just under half of GDP by 1994. Several factors accounted for the growth of the services sector. Government--already sizable under the Ottomans--expanded as defense expenditures rose; health, education, and welfare programs were implemented; and the government work force was increased to staff the numerous new public organizations. Trade, <>tourism, transportation, and financial services also became more important as the economy developed and diversified.
In the early 1990s, Turkey suffered from serious structural unemployment, although the country continued to lack skilled workers and managers. The number of people engaged in subsistence agriculture and in informal labor complicated efforts to make accurate estimates of unemployment and underemployment. In the absence of direct surveys, available statistical data only broadly indicated trends in labor markets (see table 5, Appendix A). In 1992 the civilian labor force totaled almost 18.5 million; the government estimated that unemployment was about 8.7 percent, but unofficial sources put it at 15 percent for 1993. In a study, the State Institute of Statistics estimated that unemployment in urban areas among those aged fifteen to twenty-four was 30.2 percent. According to official figures for 1992, about 44 percent of those employed worked in agriculture--down from more than 75 percent in the early 1960s. Employment in industry and construction amounted to about 20 percent in 1994, and the services sector employed about 35 percent.
During the postwar period, as agriculture modernized and grew more productive, many agricultural workers became redundant. Many now-jobless farmers, attracted by higher wages in the urban economy, migrated to the cities. Although industry and services grew rapidly after 1950, these sectors did not create enough jobs to meet the demand.
Demographic trends portend continued unemployment problems. Population growth rates declined somewhat after the 1970s, but in the mid-1990s demographers were predicting that the active population (those between fifteen and sixty-four years of age) would increase at more than 2 percent per year until at least 2000. The labor force grew at an estimated average annual rate of 2 percent during the 1960s and 1970s, at 1.5 to 2.0 percent during the early 1980s, and at 2.2 percent per year from 1985 to 1992. The several austerity programs since 1980 exacerbated the unemployment situation in the mid-1980s, with an estimated 3 million Turks unemployed in 1985. The recovery of the economy in the late 1980s appeared to improve the overall situation; manufacturing employment increased 3.4 percent per year. However, the economic crisis of early 1994 and the austerity program once again were expected to slow employment growth.
The labor force would have grown even faster during the 1970s and 1980s had it not been for a fall in the work force participation rate from about 73 percent in the 1970s to 35 percent in the early 1990s. This decline resulted from increased enrollments in secondary and postsecondary education and from the tendency of rural women who migrated to the city to refrain from entering the work force. Most demographers believed that participation rates would continue to fall as a result of higher overall school and female education rates. By 1991 the secondary school enrollment ratios, particularly for females, lagged significantly behind primary school enrollment ratios, implying room for higher future enrollment. Even if participation rates continue to fall, however, projected population growth rates will make unemployment a continuing problem.
Unemployment has caused distortions in rural and urban labor markets. Many farmers have remained on unproductive farms to avoid more uncertain fates in the cities. In addition, the large postwar increase in employment in the services sector probably reflects wide-scale underemployment, as unemployed persons resort to working as street vendors and domestic workers. The largest groups of the unemployed include educated youths from urban areas, migrants dislocated from the villages and living in shantytowns, and Turks returning from working abroad.
Emigration has provided a partial safety valve for excess labor, especially during the period between 1969 and 1973, when more than 100,000 workers left each year to seek jobs abroad. The capital-intensive, labor-short countries of northwestern Europe began recruiting workers from southern Europe and the Mediterranean basin in the 1950s. Turkish workers began emigrating to Western Europe in large numbers in the early 1960s, as the demand for labor increased in northern Europe and as the supply from southern Italy dried up because of increased domestic demand. Although Turks worked in many European countries, most went to the Federal Republic of Germany (West Germany). Many Turkish workers also went to France, Austria, and the Netherlands. The number of Turkish workers going abroad peaked near 136,000 in 1973. The oil shock of that year and the 1974-75 recession led to restrictions on new guest workers throughout Western Europe, including a ban in West Germany. These measures caused a sharp decline in Turkish emigration to Western Europe--which averaged only 18,000 per year from 1974 to 1980--and became an important issue between Turkey and the European Community. Despite the restrictions, in 1981 there were still about 1 million Turkish workers in Western Europe, half of them in West Germany.
After the unification of Germany in 1989, pressure mounted to return so-called foreign workers to their home countries even though many had been born in Europe. High unemployment rates, especially in eastern Germany, spurred neo-Nazi political parties to agitate for forced repatriation, and some groups used violence against immigrants. In one celebrated case in Rostock, members of a Turkish family were burned to death in their own home. Other European states also witnessed a rise in hostility toward guest workers, including Turks. In France, the National Front Party, led by Jean-Marie Le Pen, gained much support for its anti-immigrant stance.
After 1975 Turkish workers went more often to Arab oil states than to Western Europe. Each year from 1980 through 1982, more than 24,000 workers went to Libya and more than 10,000 to Saudi Arabia. During the same period, a yearly average of only 370 Turkish workers went to West Germany. By 1982 about 150,000 Turks were employed in Saudi Arabia, Libya, and the small Arabian Peninsula states. However, economic difficulties faced by oil-producing states in the mid- and late 1980s reduced opportunities for further Turkish emigration.
In general, the Turkish government has looked favorably on worker emigration, despite concerns that skilled workers are being lost because it is better-educated Turks who tend to emigrate. In 1994 an estimated 1.1 million Turkish workers were in Western Europe, of whom about 750,000 were in Germany. More than 200,000 were in Middle Eastern countries. Workers in Europe usually stay abroad several years, remitting funds to relatives in Turkey. Most eventually return with their accumulated savings to start a small business or buy a farm. Turks working in the Middle East, in contrast, tend to work for Turkish construction firms and typically return after each project is completed; these workers tend to remit a larger share of earnings to their families. The flow of workers' remittances became financially significant after 1965, when they reached the equivalent of US$70 million. By the early 1990s, this figure had reached US$3 billion per year.
Like most developing countries, Turkey lacks an adequate number of trained and skilled personnel. In the early 1990s, the demand for educated and skilled workers exceeded the limited number of technically and scientifically trained graduates.
Trade unions play an important role with reference to labor in the more modern sectors of the economy. Most agricultural and service workers do not belong to unions, but a substantial part of the industrial labor force in larger enterprises and some workers in other sectors, such as transportation, trade, and finance, are unionized; public-sector workers are the most likely to join a union. In the 1960s and 1970s, the wage and benefit gains of unionized workers exerted a positive influence on the income levels of nonunionized workers. After the 1980s, however, the labor movement weakened. Not only are unions smaller in terms of membership--Ministry of Labor and Social Security figures for 1985 suggested that unions included about 1.8 million workers, or about 10 percent of the civilian work force--but severe limits on their activities have kept them politically weak. As a result, during the 1980s organized labor suffered large cuts in real earnings.
By the mid-1970s, Turkey had about 800 unions, many of which had memberships in the hundreds. Few were what might be called nationwide unions; several had extensive membership in a particular industry, which gave them a leverage that most unions lacked. Many unions joined national federations to exert more influence. Before the 1980 coup, four main trade union federations with differing political orientations dominated the labor scene. The main union organization, the Confederation of Turkish Trade Unions (Türkiye Isçi Sendikalari Konfederasyonu--Türk-Is) was politically moderate, adhering to legal limits on its activities. The other major union group, the Confederation of Revolutionary Workers' Trade Unions of Turkey (Türkiye Devrimçi Isçi Sendikalari Konfederasyonu--DISK), originated from a faction of Türk-Is in 1967. DISK was much smaller than Türk-Is but more militant. In addition, small numbers of workers belonged to the pro-Islamist Confederation of Turkish Just Workers' Unions (Türkiye Hak Isçi Sendikalari Konfederasyonu--Hak-Is) and the right-wing Confederation of Turkish Nationalist Workers' Unions (Türkiye Milliyetçi Isçi Sendikalari Konfederasyonu--MISK). After the 1980 coup, all union federations except Türk-Is were banned for a period. Subsequently, the government allowed the other union groups to resume their activities.
Figures on trade union membership vary, but Ministry of Labor statistics at least give an idea of the relative sizes of the unions. According to this source, in 1992 Türk-Is had a membership of about 1.7 million, Hak-Is had about 330,000 members, and DISK had about 26,000 members. In addition, Turkey had twenty-four independent unions that did not belong to federations. The size of their memberships was uncertain in early 1995, but organized labor totaled almost 2.2 million workers in 1992. Workers could legally belong to more than one union, which explains some of the confusion surrounding membership statistics.
Established in 1952, Türk-Is includes many workers employed in SEEs and was the only union group actively involved in large-scale collective bargaining in the early 1990s. Strongly centralized, Türk-Is is dominated by a few large, conservative unions; the social democratic unions that figure among its thirty affiliates have little say in federation affairs. In adherence to the law, Türk-Is has remained technically aloof from party politics but is interested in issues affecting labor. Türk-Is is affiliated with the American Federation of Labor-Congress of Industrial Organizations through its membership in the Asian-American Free Labor Institute, which provides training for union leaders. Since 1980 Türk-Is has generally refrained from calling strikes, perhaps because of fears that labor conflicts might lead to layoffs of surplus SEE personnel.
Against a background of growing labor unrest in 1994, related to deepening economic problems, budget cuts, and privatization, Türk-Is coordinated wage talks with the government at the end of the year. Although accused of earlier and questionable cooperation with the government, Türk-Is faced widespread pressure from affiliated unions and their members not to agree to the increase the government was offering. Both DISK and Hak-Is had strongly opposed a pay increase of 102 percent for the Türk-Is-affiliated Teksif union at the end of 1994 on the grounds that the size of the pay increase did not meet the much higher inflation rates and the agreement was co-optive.
DISK, Türk-Is's chief rival, draws its members primarily from the private sector and from municipal workers. In the mid-1990s, it seemed that supporters of left-wing unions such as DISK were shifting to Islamist-oriented ones. Nonetheless, DISK-affiliated unions continued to exert some influence as part of overall labor pressure to maintain wage and employment levels.
Before 1980 Hak-Is was reportedly tied to the pro-Islamic National Salvation Party (Milli Selamet Partisi--MSP), whereas MISK supported the Nationalist Action Party (Milliyetçi Hareket Partisi--MHP). In 1980 the two federations claimed memberships of 68,000 and 290,000, respectively. After 1984 they played only a minor role in collective bargaining because they lacked sufficient membership to be considered representative under new labor legislation.
The 1980 military intervention severely restricted trade union activities. The 1982 constitution and the laws on union organization, collective bargaining, strikes, and lockouts passed in 1983 have made Turkey's unions the most tightly controlled in noncommunist Europe. To have the right to represent the workers at a given facility, unions must prove that they have the support of at least 10 percent of union membership within the industry and a majority at the particular workplace. Political and general strikes and many forms of industrial action, including secondary strikes, work slowdowns, and picketing, are prohibited. About half of the unionized workers, including those in the gas, water, electricity, mining, and petroleum industries as well as those in banking, urban transit, garbage collection and firefighting, are allowed to strike. Strikes can be called only after a written announcement to the government, which may require a ninety-day cooling-off period followed by compulsory arbitration. Workers who strike illegally may be punished with as much as eighteen months in prison, and those who participate in such strikes can be fired, with the loss of all accumulated financial claims, including pensions.
Following the 1980 coup, the military government prohibited collective bargaining until May 1984, after which time officials continued trying to restrain wage settlements in order to limit inflation. Although private-sector wage settlements in 1984 and 1985 included increases ranging from 25 to 60 percent, pay adjustments generally continued to run behind the inflation rate, resulting in declines in real wages. The government took a more relaxed attitude in the late 1980s, but by 1994 the authorities were once again using antistrike regulations from the early 1980s to stop strikes and other job actions.
In the public sector, the government has been even more successful at holding the line against wage increases, although large increases in 1992-93 led to a sharp jump in government expenditures. With a limited endorsement by the IMF, government employees' wages were targeted as the primary means of achieving budget cuts in 1994 and early 1995. As part of this strategy, Prime Minister Çiller attempted to use illegal strikes as a pretext for liquidating certain public enterprises; unionized workers also would be notified that there were plenty of unemployed people willing to do their jobs for lower pay. In early 1995, unions for public-sector workers outside the public enterprises faced the possibility of being abolished altogether. Also, seasonal workers with part-time jobs working on village roads, irrigation projects, and other infrastructure components were to be placed under the authority of provincial authorities, an arrangement that would cost them their labor rights. People employed with "worker" status, who therefore had certain rights under the law, were reclassified as "public servants" with no right to bargain collectively or to strike. Members of this group fared badly in the mid-1990s, with declining wages accompanying their loss of rights.
Source: U.S. Library of Congress
The Ottoman Empire established a strong tradition of government direction of the economy. Ottoman economic doctrine ascribed to the state both the right and the duty to control the economy for the common good. The state controlled a large proportion of the land and suppressed power centers, blocking the development of a landed aristocracy. One's position in the imperial hierarchy was the primary determinant of income. Because the sultan confiscated his functionaries' wealth when they died, status could be passed on only by means of education. For example, candidates for positions in the bureaucracy were required to have command of the Ottoman language. Peasants and artisans also claimed and received protection from the state, often at the expense of economic modernization. The bureaucracy had little interest in economic growth, which might lead to the rise of a new class that would challenge its dominance. To ensure control of certain urban-based production and service functions, they were reserved for minority groups.
Republican Turkey inherited attitudes and memories from the Ottomans that continue to play a key role in the country's political economy in the late twentieth century. Republican leaders believe that the state has a duty to intervene in the economy, not only to strengthen the nation against foreign intervention but ultimately to further the well-being of the people.
Scholars traditionally have stressed the significance of state intervention in the economy during the early years of the republic, but more recent research indicates that Turkish economic policy was relatively liberal until the 1930s. The government made significant investments in railroad and other infrastructure projects, but the Law for the Encouragement of Industry of 1927 and other measures encouraged private enterprise. Moreover, Turkey's economy was relatively open to international markets during the 1920s. Under the provisions of the Treaty of Lausanne of 1923, the capitulations were abolished, but Turkey could not introduce protective tariffs until August 1929. As a result, tariffs remained low, and the Turkish lira was convertible and floating. Foreign interests invested in both public and private enterprises, helping to initiate industrial development. During these early years, economic growth was satisfactory, but the country ran chronic foreign trade deficits despite the continued fall in the value of the lira.
Turkish economic development reached a turning point with the Great Depression. By 1930 foreign markets for Turkish agricultural products had collapsed, causing sharp declines in the prices of agricultural goods and a corresponding decline in national income. Dissatisfied with the slow development of industry, Turkey's leaders began to look for alternative policies. During the late 1920s and the early 1930s, economic and political thinkers discussed alternative approaches to national economic development. The interventionist trend in Western economic thinking, represented by works such as John Maynard Keynes's The End of Laissez-Faire (1926), influenced the theoretical debate. The apparent successes of the Soviet Union's drive to develop heavy industry under its First Five-Year Plan (1928-33) also impressed Turkish thinkers, although in the end Turkish policy borrowed primarily from the West.
At its 1931 congress, the Republican People's Party (Cumhuriyet Halk Partisi--CHP) adopted etatism, one of Atatürk's Six Arrows, as its official economic strategy. According to this program, individual enterprise was to retain a fundamental role in the economy, but active government intervention was necessary to boost the nation's welfare and the state's prosperity. The CHP also declared that etatism was an intermediate road between capitalism and socialism. In practice, etatism entailed the promotion of industrialization by means of five-year plans and the creation of public enterprises. Comprehensive protective tariffs also were introduced during the 1930s, establishing a pattern of import-substitution industrialization that would continue for many years.
After World War II, all major parties claimed to support etatism. The sharp reorientation of Turkey's economic policies after 1980 included a repudiation of much etatist doctrine, which, however, still influenced Turkish economic thinking. Inasmuch as Atatürk had declared that once Turkey had reached a satisfactory level of development certain state enterprises could be returned to private control, the post-1980s economic reforms perhaps could be considered a continuation of one aspect of the original etatist program. Moreover, the government continued to use policy tools such as SEEs and development planning that had originated during the etatist period. Nonetheless, by the mid-1990s deepening government indebtedness dictated a faster reduction of the state's economic commitments. Given Turkey's high inflation, job insecurity, and unemployment, etatism could be in vogue again, but in the mid-1990s no major opposition party was calling for the wholesale renationalization of the economy. .
An important tool of etatism to further government economic policies, State Economic Enterprises (SEEs) are variously organized, but the government owns at least a 50 percent share in each of them. SEEs are set up by the government, and each has a board that reflects the ownership of the particular SEE, combining government representatives, who direct the enterprise, with private interests. During the etatist industrialization campaign of the 1930s, the government set up many industrial SEEs. In the mid-1990s, SEEs continue to dominate sectors considered to be of national importance or sectors where private investors have hesitated to invest because capital requirements are too great in light of expected returns. SEEs include national transportation, communications, and energy enterprises; banks that own companies, in particular branches such as textiles or refining; and conglomerates with holdings in many fields. Some SEEs control companies in which ownership is shared with private and foreign investors. In 1964 the State Investment Bank was established to provide long-term investment credits to SEEs. Credits from the Central Bank of Turkey, transfers from the Treasury, and capital markets also finance SEEs.
In the mid-1990s, SEEs accounted for more than 40 percent of value added in manufacturing and employed about 550,000 workers, or about 20 percent of the industrial work force. Until 1980 SEEs set their prices in accordance with government directives, but after the introduction of that year's reform package, they were expected to set prices independently. Nevertheless, prices of some major commodities, such as fertilizers, continue to be determined by the government. SEEs also influence markets, especially those for agricultural goods, by establishing guaranteed minimum prices for commodities.
Aside from their role in industrial development, SEEs are charged with social goals. The farm-support program stabilizes farmers' incomes, while low consumer prices for food, energy, and transportation help the urban poor. SEEs also provide training and employ surplus university graduates and constituents of influential politicians, contributing to overstaffing. Some SEEs are placed in underdeveloped regions to spur industrial development, a practice that increases transportation and infrastructure costs.
One objective of the Özal reforms was to improve SEEs' efficiency and reduce their need for subsidies. By 1982 the government had freed most SEE prices and had given SEE managers greater autonomy and responsibility. The administration favored opening state monopolies to outside competition and decided in 1983 to limit SEE investments in manufacturing. Nevertheless, in the mid-1980s the state sector had to take over several failed banks that had significant industrial holdings, and the low rate of private investment meant that the public share in industrial investment actually rose. By the mid-1990s, SEEs remained a major burden on the public exchequer. Of the fifty SEEs, only fifteen were expected to report profits in 1994. Funding the operating losses of the SEEs--TL90 trillion in 1994 alone--annually cost the Treasury around TL20 trillion (about US$70 billion) in 1993 and 1994; the remainder was borrowed from banks. The total debt stock of the public enterprises by late 1994 was estimated at TL250 trillion, the bulk of which was owed to the Treasury and Central Bank. This debt generated an interest charge of around TL60 trillion in 1994 alone on collective sales of TL550 trillion. Deepening economic problems in the 1990s were part of the reason for the losses. This situation was exacerbated by a requirement that took effect after 1989 stipulating that SEEs borrow at high market rates.
Major plans for privatization of SEEs were supposed to go into effect as early as 1987 but as of early 1995 had not yet occurred. Prime candidates for sale include the state airline, the cement industry, and the textile industry. Almost all SEEs are considered potentially suitable for privatization except for certain infrastructure facilities such as power plants and railroads.
Some SEE managers and unions oppose privatization, fearing that, once under private management, the enterprises will eliminate unprofitable subsidiaries or aggressively reduce overstaffing. Some opposition parties also fear that public assets will be allocated among "friends" of government officials, with the result being the creation of private monopolies. Observers anticipate that certain "strategic" industries, including much mining and defense production, will remain in the public sector and that the best the administration can hope for would be to force them to approximate private- sector practices. Moreover, certain privatization moves, particularly the sale of cement mills belonging to the public enterprise Citosan, and a controlling stake in the airport management company Havas, were reversed by the Constitutional Court on administrative grounds.
After becoming prime minister, Çiller accepted the existing legislation on privatization and even sought wider powers to hasten the process. Law 3291, passed in 1986, had established the Public Participation Administration, which would control SEEs designated for privatization and prepare them for the process. In late 1994, the National Assembly passed a bill introduced by Çiller to revamp the administrative procedures dealing with privatization.
The bill established the Privatization Administration to carry out technical work and a Privatization High Board to make final decisions. The latter would control the Privatization Fund into which revenues were to be channeled. The Privatization High Board would consist of the prime minister, the minister of state "responsible for privatization," and the ministers of finance and industry and trade. The board was also to be responsible for deciding which public enterprises are of special strategic importance and in which the state should retain preference shares. Turkish Petroleum, Ziraat Bank, Halk Bank, Turkish Airlines, and the Soil Products Office Alkaloid Plant were placed in the latter category. Railroads, airports, and the General Management for Trade in Tobacco, Tobacco Products, and Alcoholic Spirits (Tütün, Tütün Mamülleri, Tuz ve Alkol Isletmeleri Genel Müdürlügü--TEKEL) were not designated to be privatized in the mid-1990s. Privatization of telecommunications and the electricity production and distribution board were to be dealt with in separate legislation. All other types of SEEs were again targeted for privatization in various ways, including the sale of all or parts of a company through share offers, block sales, auctions, and the transfer of plants to private domestic and foreign entities and to companies formed by workers and local townspeople. Some of the early candidates were the Eregli Iron and Steelworks, the Turkish Petroleum Refineries Corporation (Türkiye Petrol Refinerileri As--TÜPRAS), the state oil products distributor (Petrol Ofisi), the petrochemicals company (Petkim), the industrial interests of the state holding company, Sumerbank, the national airline (Turkish Airlines), and the airport company (Havas). The bill also set guidelines to prevent the formation of private monopolies and methods for dealing with workers who lose their jobs. Workers made redundant would continue to receive their wages for up to eight months and, depending on length of service, would get pensions or severance pay.
Turkey first introduced five-year plans in the 1930s as part of the etatist industrialization drive. The first five-year plan began in 1934. A second plan was drafted but only partially implemented because of World War II. These early plans were largely lists of desirable projects, but they provided guidance for the development of infrastructure, mining, and manufacturing. During the 1950s, the Democrat Party (DP) eliminated central economic planning, but the 1961 constitution made social and economic planning a state duty. In 1961 the government established the State Planning Organization (SPO), which was given responsibility for preparing long-term and annual plans, following up on plan implementation, and advising on current economic policy. The SPO comes under the prime minister's office and receives policy direction from the High Planning Council (also seen as the Supreme Planning Council), which is chaired by the prime minister and includes cabinet ministers. The Central Planning Organization, the secretariat of the High Planning Council, formulates the strategy and broad targets on which the SPO bases detailed plans. Plan targets are binding for the public sector but only indicative for private enterprises.
SPO plans include--in addition to investment levels--macroeconomic targets, social goals, and policy recommendations for individual subsectors of the economy. Turkey was one of the first countries to develop regional planning, a major challenge given the limited development of eastern and southeastern Anatolia. The SPO has approached planning from a long-term perspective and drew up the First Five-Year Plan (1963-67) and the Second Five-Year Plan (1968-72) in the context of what should be accomplished by the mid-1970s. Similarly, development goals for 1995, including a customs union with the EC, were set in the Third Five-Year Plan (1973-77) and the Fourth Five-Year Plan (1979-83). Successive plans took stock of problems and previous accomplishments, but many policy suggestions were never effectively implemented.
Early plans were heavily weighted toward manufacturing, import substitution, and the intermediate goods sector. The economic and political disorder of the late 1970s, however, made it impossible to achieve plan targets. After the 1980 coup, the Fourth Five-Year Plan was modified to favor the private sector, labor-intensive and export-oriented projects, and investments that would pay for themselves relatively quickly. The Özal administration delayed the Fifth Five-Year Plan (1984-89) for one year to take account of the structural reform program introduced in 1983. Unlike earlier plans, the Fifth Five-Year Plan called for a smaller state sector. According to the plan, the state would take more of a general supervisory role than it had in the past, concentrating on encouraging private economic actors. Nevertheless, the state was to continue an aggressive program of infrastructure investments to clear bottlenecks in energy, transport, and other sectors.
In May 1989, the government published the 1990-95 Development Plan. The plan called for overall economic growth of 7 percent per year. The growth of private-sector investment was targeted at an average of 11 percent per year, whereas the aim was to increase exports 15 percent per year. The inflation rate was targeted at 10 percent per year. As it developed, although high growth rates were maintained during the 1990-95 period, they came at the cost of increased foreign and domestic borrowing, which funded an inflationary government budgetary and monetary policy. Rapid rates of growth also were boosted by foreign direct investment. Excessive borrowing and domestic political problems led to a balance of payments crisis that sharply reduced domestic investment rates and ultimately led to a decline in incomes. Whereas the development plan had called for high growth rates and macroeconomic stability, Turkey actually has experienced high growth rates and macroeconomic instability.
Public-sector spending is the most important means of state intervention in the Turkish economy. The consolidated government budget comprises central government spending and a number of annexed budgets of such partially autonomous entities as the State Highway Administration, state monopolies, and some universities and academies. Local budgets and most SEE budgets generally are not included in the consolidated budget, nor are special and extrabudgetary funds. The most important of the latter are the Mass Housing Fund, financed from luxury-import duties; the Defense Industry Support Fund, financed from levies on sales of gasoline, cigarettes, and alcoholic beverages; and the Public Revenue Sharing Schemes Fund. The partially autonomous organizations are included in the calculations for the public-sector borrowing requirement (PSBR).
Since 1983 the Treasury, under the direct control of the prime minister's office, has had sole responsibility to raise domestic tax revenues. The Ministry of Finance and the SPO are mainly responsible for planning spending policies, but the minister of finance presents the annual budget to parliament, which approves the annual government budget and legislates supplementary appropriations as required during the fiscal year, at times making significant modifications.
Turkish governments have persistently run large budget deficits, which have fueled inflation, capital flight, and heavy foreign and domestic borrowing. At the heart of this problem is the political system, which tends to be largely unrepresentative even when democracy is formally operating. Prior to major elections, governments have been prone to boost spending, particularly salaries for government workers. Despite recent modest changes to this system, Turkish governments have been averse to increasing taxes to pay for their high spending. Taxes, excluding social security contributions, are still around 20 percent of GNP--the lowest figure among the member countries of the Organisation for Economic Co-operation and Development.
Prior to 1980, local administrations had limited revenue-earning power and depended heavily on funds transferred from the central government. Even with such transfers, local governments were often short of funds needed to provide services required during a period of rapid urbanization when many city dwellers lacked even the most basic services. After 1980 reforms significantly strengthened the revenue base of municipalities, in part by providing that 5 percent of government tax revenues would be withheld at the local level. In 1994 Çiller also attempted to increase the revenues that local governments might raise.
During the early and mid-1980s, the government made serious attempts to reduce Turkey's inflationary budget deficits, implementing policies to streamline government, improve public resources allocation, and modernize the tax system. The government, for example, designed tax reforms to increase revenues and to reduce inequities. In addition, the introduction of a lump sum tax on small businesses and a new system of income tax payments for self-employed people reduced tax evasion. The government also started to tax farmers' incomes systematically for the first time since the 1920s. Other reforms strengthened tax administration, established new tax courts, and instituted heavier penalties for tax evasion.
Overall, the consolidated budget deficit declined during the 1980s as a result of the reform measures. During the decade, the deficit averaged 3 percent of GNP. However, the deficit went up in the 1990s, reaching 7.4 percent in 1991, 6.1 percent in 1992, 9.8 percent in 1993, and 8 percent in 1994 (see table 6, Appendix A). The 1994 figure includes a first-quarter budget deficit of 17 percent, which was sharply offset in subsequent quarters after the promulgation of the April 5 measures and tight supervision by the IMF. These measures more than reversed some of the increases in wages and other spending made in 1992 and 1993. Public-sector borrowing requirements have been much higher as a percentage of GNP. After averaging around 6 percent during the 1980s, they ranged from about 10 to 17 percent in the 1990s.
Agriculture--the occupation of the majority of Turks--continued to be a crucial sector of the economy in the mid-1990s, although industrial production was rising. Turkey's fertile soil and hard-working farmers make the country one of the few in the world that is self-sufficient in terms of food. Turkey's great variety of microclimates and adequate rainfall permit a broad range of crops. Farming is conducted throughout the country, although it is less common in the mountainous eastern regions, where animal husbandry is the principal activity. In the mid-1990s, crop cultivation accounted for about two-thirds and livestock for one-third of the gross value of agricultural production; forestry and fishing combined contributed a minimal amount.
Agriculture's share in overall income has fallen progressively, declining from almost 50 percent of GDP in 1950 to around 15 percent of GDP by 1993. During the same period, the sector grew only about 1 percent faster than the country's population, and per capita food production declined in absolute terms. The relatively poor showing of the agricultural sector reflected in part government policies that had made rapid industrialization a national priority since the 1930s. In addition, farmers were slow to adopt modern techniques, with agricultural output suffering from insufficient mechanization, limited use of fertilizer, excessive fallow land, and unexploited water resources. The result has been low yields.
Despite agriculture's relative decline in the 1980s as a percentage of GDP, the sector played an important role in foreign trade. Turkey enjoys a comparative advantage in many agricultural products and exports cereals, pulses, industrial crops, sugar, nuts, fresh and dried fruits, vegetables, olive oil, and livestock products. The main export markets are the European Union and the United States--to which Turkey primarily exports dried fruit and nuts, cotton, and tobacco--and the Middle East, which primarily imports fresh fruit, vegetables, and meat from Turkey. As late as 1980, agricultural exports accounted for nearly 60 percent of the total value of exports. In the early 1990s, agricultural products accounted for 15 percent of total exports. Around 50 percent of manufactured exports originate in the agricultural sector; counting these exports, the agricultural sector's contribution to exports again would rise to around 60 percent.
Agriculture has great potential for further development, provided that the state can implement successful agrarian reforms and development projects. Observers believe that to achieve balanced growth, Turkey needs to improve the training of farmers, make better seed available, upgrade livestock herds, standardize products, expand food-processing facilities (including cold storage and refrigerated transport), and reorganize marketing networks. Since 1980 the government has encouraged investments in packaging, processing, livestock, and slaughterhouses, and has imported new seed varieties. These efforts had a modest impact on overall production by the mid-1990s.
The failure to exploit the country's great agricultural potential has contributed to Turkey's periodic economic crises and poses serious problems for future development. Glaring inequalities of income between urban and rural residents--and among segments of the farm population--have created social tensions and contributed to emigration from rural to urban areas. Malnutrition continues to threaten segments of the rural population, especially children. The Kurdish insurgency in eastern Turkey has added to problems in some rural areas. Rising incomes in the urban areas have caused increased demand for more "exotic" foodstuffs, especially meat and poultry. Since 1984 Turkey has liberalized its policy on food imports, partly to meet this urban demand and partly to offset domestic price pressure. Many previously banned luxury food imports and imports that compete with domestically produced staples are permitted for these reasons; in turn, the growth of these imports has contributed to pressures on foreign trade accounts. Overall, agricultural output needs to expand along with the rest of the economy to maintain adequate supplies for industry and exports. Longer-term economic growth prospects and macroeconomic stability, therefore, depend on the performance of Turkey's agricultural sector and rural incomes.
<>Agricultural Policy
<>Irrigation
<>Land Use
<>Land Tenure
<>Cropping Patterns and Production
<>Livestock
<>Forestry and Fisheries
By 1980 Turkey was self-sufficient in food, and agricultural output was growing at a respectable rate, albeit more slowly than the economy as a whole. Starting in the early 1970s, crop intensification resulted from a reduction of fallow areas and increased use of fertilizer, fuel, and pesticides. The livestock industry, however, showed little improvement in productivity, and the later years of the decade saw the stagnation of all agriculture. Although production became less dependent on the weather as a result of irrigation and high-yielding varieties of seeds, these methods required adequate supplies of fertilizers, chemicals, equipment, and fuel, much of which had to be imported.
Productivity shortcomings, along with the new export-oriented development strategy, led to the adoption of different agricultural policies after 1980. Under the new approach, the government switched from promoting food self-sufficiency to maximizing agriculture's net contribution to the balance of trade. The incentive system was partially dismantled, fertilizer and pesticide subsidies were curtailed, and the remaining price supports were gradually converted to floor prices. The tight monetary policy limited agricultural credit, but real interest rates on loans to farmers remained negative. Nonetheless, a high proportion of defaults by farmers occurred on loans with high interest rates. In some cases, this led to the confiscation of land, tractors, or other property by the state, prompting one Turkish daily, Milliyet , to run an article entitled, "Bailiff Officer: The New Lord of the Peasants." The elimination of export licenses and minimum export prices, along with currency devaluation, an export-incentive system, and flat domestic demand, encouraged agricultural exports. In addition, a wider range of food imports was permitted, providing competition for domestic products.
The government's hope of rapidly increasing agricultural exports was slow in materializing, and total values fell sharply in the mid-1980s. This decline reflected both softer demand abroad (especially in the Arab oil-producing countries) and Turkey's own attempts to increase the share of agricultural products processed prior to export. Still, by the early 1990s agricultural exports had risen, with the most dramatic increase occurring in textiles and clothing, which depend on indigenously grown cotton.
Despite the turn toward liberal agricultural policies, government intervention in agriculture remained pervasive in the mid-1990s. Many of the institutions established between 1930 and 1980 continue to play important roles in the daily life of the farmer, and many old attitudes and practices remain. A large number of ministries, agencies, SEEs, and banks administer government price supports, credit measures, extension and research services, and irrigation projects. In the past, overlapping responsibilities and lack of coordination had often diluted the effectiveness of government activities. Some progress was made in the 1980s, however, when the Ministry of Agriculture, Forestry, and Rural Affairs reorganized its eleven departments into five general directorates. Subsequently, the ministry was divided into the Ministry of Agriculture and Rural Affairs and the Ministry of Forestry.
After 1980 the government reduced budget transfers to agricultural SEEs and decreased the level of price supports, but the state still controlled most markets in the sector. Public marketing agencies and marketing or credit cooperatives administered prices and handled a large share of exports. Several of the SEEs involved in agricultural production had been slated for privatization in the early 1990s. The Meat and Fish Board, the Fodder Industry (Yem Sanayili), and the Milk Industry Board (SEK) were targeted for immediate privatization when they were placed under the control of the Public Participation Administration. However, officials in 1994 stated that they lacked sufficient funds to pay the sizable debts these organizations had accumulated, a necessary step before privatization.
Nearly all farm produce except livestock and fresh fruits and vegetables has support prices, which became more effective when the ministry started announcing them in the fall, giving farmers time to choose which crops would be most profitable. For most crops (except tea, sugar beets, and opium, for which the state is the only buyer), farmers can choose between selling to private buyers or to the state. Supports stabilize crop prices and improve aggregate farm income but add to the disparities of income between large and small farmers. Support prices grew slowly in the 1980s and did not keep up with inflation. However, in the summer of 1991, in anticipation of the forthcoming elections, Özal's Motherland Party government raised all support prices by 60 to 70 percent. Subsequent governments under Demirel and Çiller maintained increases in support prices roughly in line with the high inflation rate. During 1994, however, these increases were not maintained. In addition, the Agricultural Supply Organization provides many farm materials at subsidized prices, including fertilizers, pesticides, and insecticides.
The Agricultural Bank of Turkey (Türkiye Cumhuriyeti Ziraat Bankasi--TCZB) provides most loans to farmers and cooperatives and closely watches agricultural credit. Although the TCZB was intended to favor small farmers in the distribution of credit, its loan requirements restrict credit for the many small farmers who either rent or lack a secure title to land or other properties needed as collateral. Much of the bank's lending consists of short-term loans extended to cooperatives for commodity price support. Farmers also obtain credit from merchants, wealthy farmers, and money lenders, often at extortionate interest rates. Much of the World Bank's lending for agricultural projects in Turkey is channeled through the TCZB.
Agricultural extension and research services are poorly organized and generally inadequate because of shortages of qualified advisers, transportation, and equipment. Well-trained personnel willing to work in the field are difficult to find, and agricultural research is fragmented among more than ninety government and university institutes. Research is organized by commodity, with independent units for such major crops as cotton, tobacco, and citrus fruit. Observers note that coordination of the efforts of different research units and links between extension services are inadequate. During the mid-1980s, the government attempted to strengthen and rationalize research and extension services, but the organizational complexity of the entities involved made reform difficult.
<>Irrigation
<>Land Use
<>Land Tenure
<>Cropping Patterns and Production
<>Livestock
<>Forestry and Fisheries
Getting enough water to crops is a major problem for many Turkish farmers. Rainfall tends to be relatively abundant and regular in the coastal areas because of the mountains behind them. However, the bulk of the agricultural land is on the Anatolian Plateau, which receives less rainfall because it is ringed by mountains. Although rainfall on the plateau varies considerably among regions, it is barely adequate over large areas. In addition, the amount and time of rains vary sharply from year to year, causing sharp fluctuations in harvests. Since World War II, officials have stressed irrigation as a means of increasing and stabilizing farm output, and irrigation projects have consumed more than half of public investment in agriculture.
In the mid-1980s, observers estimated that private irrigation, depending on weirs and small barrages to direct water into fields, reached up to 1 million hectares. In addition, some farmers pumped water from wells to irrigate their own fields. Development of large-scale irrigation was delayed until the 1960s. Public-sector irrigation systems, built and operated by the General Directorate of State Hydraulic Works (Devlet Su Isleri--DSI) under the Ministry of Energy and Natural Resources, tend to be large and costly. Most provide water for entire valleys, and some large projects--for example, the Southeast Anatolian Project (Güneydogu Anadolu Projesi--GAP)--combine water supplies for urban areas, protection from flooding, hydroelectric power, and irrigation. Irrigation projects are dispersed throughout the country, but most are concentrated in the coastal regions of the Aegean and Mediterranean seas, where the longer growing seasons are particularly favorable to crops. Public irrigation water was available to 3.7 million hectares in the mid-1990s, although the area irrigated with public water totaled about 3 million hectares.
Deficiencies in irrigation included a serious lag between the construction of the main parts of an irrigation system and the completion of land leveling and drainage on farms. Also, crop research and farmer training were inadequate to assure the planting of suitable crops to obtain maximum yields from irrigated land. In the late 1970s, government officials estimated that only one-third of the irrigated land was being cultivated to its full potential. Moreover, low user fees did not initially permit the authorities to regain their initial investments; the fees were adjusted in the 1980s, however.
Major projects were planned to expand the irrigation system because government surveys had indicated that irrigation of up to 8.7 million hectares was possible. The most important project of the late 1980s and early 1990s is the GAP, which is linked with the 2,400-megawatt Atatürk Dam on the Euphrates River and is expected to irrigate 1.7 million hectares when it is completed in 2002. The system consists of a twin-bore 24.6-kilometer tunnel, which will take water from the reservoir to irrigate the plains around Harran, Mardin, and Ceylanpinar in southeastern Turkey. In the GAP region, farmers face a six-month dry season allowing them only one cash harvest per year. Irrigation will probably enable expansion to two or even three harvests. Crop rotation, which is largely unknown in areas without irrigation, has been introduced in the GAP region. Winter vegetables are expected to alternate with cotton as the summer crop. Although wheat and pulses dominate cropping patterns, cotton could take a larger share as access to water increases. The government projects that the GAP will increase Turkish wheat production by more than 50 percent, barley by a similar figure, and the region's production of cotton by more than four times by 2005, thus increasing national cotton production by 60 percent. The value of food surpluses expected to result from this project is estimated at US$5 billion.
Turkey's land surface totals about 78 million hectares, of which roughly 48 million hectares were being used for some form of agriculture by 1991. There were almost 24.2 million hectares in field crops, of which 5.2 million lay fallow. Another 3.7 million hectares were in use as vineyards, orchards, and olive groves, and 20.2 million hectares were covered by forests and other woodlands. Other land areas accounted for about 29 million hectares; included in this figure was land classified as lakes, marshes, wasteland, and built-up areas. The "other" category also included about 9 million hectares of permanent pastureland.
During the twentieth century, population pressure resulted in the expansion of farmland. The cultivated area increased from about 8 million hectares in the 1920s to nearly 19 million hectares in 1952 and to almost 28 million hectares by 1991. Using Marshall Plan credits that first became available in 1948, Turkey began to import large numbers of tractors, which made it feasible to expand cultivation of marginal lands, especially on the Anatolian Plateau. Although total production grew rapidly, average yields did not. By about 1970, nearly all arable land was under cultivation.
Cultivation increased primarily at the expense of meadows and grasslands, which diminished from about 46 million hectares in the mid-1920s to about 14 million hectares in the mid-1980s. Although cultivation of the larger area made greater agricultural production possible over the short run, it created long-term problems for livestock production. It also resulted in the destruction of tree cover and the plowing of marginal fields that were too steep and that received barely sufficient rainfall even in normal years. By the early 1960s, government agents were encouraging farmers to practice contour plowing and to take other measures to minimize erosion, but to little effect. By the late 1970s, more than half the country's land was judged to have serious erosion problems, and some plains regions were experiencing dust-bowl conditions. All of Turkey was affected, with the mountainous eastern provinces hit hardest. Some areas lost all topsoil and could support few plants.
In the 1970s, the government conducted land-use studies and found that more than one-fifth of the land should have been used differently to achieve optimum long-term production. Misuse was greatest in rain-fed cropped fields, but some grazing land and wasteland were found better suited to other uses such as cropping and forestry. Turkey's unusually high proportion of fallow land also limited production; in 1981 the government began encouraging double cropping and the planting of feed crops on fallow fields. The government also was considering a broad land-use policy. However, reform proved difficult because of government inefficiency and the lack of alternative crops in areas cut off from markets, where farmers had little choice but to use their land to grow grain to feed their families. Expansion of the road network, irrigation facilities, and extension services continued to offer hope for eventual improvements in land use.
From the time of Atatürk, it has been generally recognized that land reform would speed rural development. Most attention focused on land redistribution--a highly charged political issue. People who favored land reform pointed to the higher yield achieved by owner-operators and attacked absentee landlords. Opponents pointed out that land reform would not solve the difficulties of the rural population because there was insufficient land to establish farms large enough to support families. Whatever the merits of land reform proposals, large landowners effectively blocked most action, and governments often lacked the will to implement those measures that were enacted. Moreover, landless peasants continued to migrate to the cities in sufficient numbers to reduce the pressure for reform.
Historically, Turkey has been a land inhabited by independent peasants. The Ottoman state restricted the growth of a landowning class; and in the early years of Ottoman rule, the central government retained ownership of most of the land, which was leased to farmers under relatively secure tenure arrangements. To maintain farms large enough to support a family and a pair of oxen, the Ottomans exempted land from Muslim inheritance policy, a practice subsequently reversed as the state reinstituted Islamic inheritance practices, sold land to gain revenues, and authorized land transfers. These changes favored the growth of a class of large landowners during the latter decades of the empire. By 1923 landownership had shifted in favor of a small group with large holdings. However, during the republican period land concentration declined, a development that perhaps reflected the effects of division through inheritance or the attraction of alternative investments. At the same time, the opening of new areas to cultivation made land available to those farmers without holdings.
Because no comprehensive cadastral surveys have been carried out, landownership data are still poor in the mid-1990s, but a general picture of ownership patterns emerges. According to the 1980 agricultural census, about 78 percent of the farms consisted of five hectares or less and together accounted for 60 percent of farmland. About 23 percent of the farms were between five and twenty hectares in size, accounting for another 18 percent of the land. Fewer than 4 percent of the farms covered more than twenty hectares, although these occupied more than 15 percent of the farmland. Few farms exceeded 100 hectares. Although experts believed that landownership was more concentrated than data on farm size implied, it was clear that Turkey had more equal distribution of land than did many other developing countries.
Some observers estimate that, despite widespread leasing and sharecropping, a majority of farms are owner operated. However, tenure patterns vary significantly among regions, reflecting different geographical conditions and historical developments. In general, Islamic inheritance practices, which establish set shares for each male and female child, cause fragmented holdings and make leasing and sharecropping extensive. Joint ownership of land is common, and even very small farms normally consist of several noncontiguous plots. Farmers often rent out some of their own land while leasing or sharecropping other plots in order to till areas reasonably close together and large enough to support their families. Owners of small plots may rent out their land and work on other farms or in town. Owners of large holdings, sometimes whole villages, usually rent out all or most of their land. Between one-tenth and one-fifth of farmers lease or sharecrop the land they till, and landless rural families also work as farm laborers.
Tenancy arrangements are many and complex. Some leaseholds can be inherited, but many tenants lack sufficient security to make a long-term commitment to the soil they till. Sharecroppers generally receive about half of the crop, with the owner supplying inputs such as seed and fertilizer. Grazing rights are often held by groups rather than individuals. Many villages have common pastures open to the village herd. Cultivated areas have expanded as individuals appropriate village pastureland to grow grains, a process that not only has caused village strife but also has worsened erosion.
After 1950 the commercialization of agriculture accelerated changes in land-use and tenure patterns. Many of the large holdings on the coastal plains of the Aegean Sea and Mediterranean Sea were converted to modern farms, often benefiting from irrigation projects and specializing in high-value fruits, or industrial crops. Landless families supplied the labor for such modern farms, while sharecroppers and owners of small farms tilled the adjacent land. In these more fertile areas, a five-hectare farm might produce as much income as a twenty-hectare farm in the semiarid central Anatolian Plateau. Southeastern Anatolia, one of the poorest regions of Turkey, included feudal-style landlords who controlled entire villages and many landless families.
Although Atatürk had stressed the need for upper and lower limits on landownership, the latter to halt the fragmentation process, little in the way of effective land reform had been carried out by the early 1990s. Nevertheless, more than 3 million hectares had been distributed to landless farmers between the 1920s and 1970, most of it state land.
The problems of land tenure remain, and some have worsened. Many farms are too small to support a family and too fragmented for efficient cultivation. Tenancy arrangements foster neither long-term soil productivity nor the welfare of tenants. In many areas, the rural poor are becoming poorer while land better suited to grazing continues to be converted to grain fields. At the same time, however, many large landholdings have been turned into productive modern farms that contribute to the country's improved agricultural performance. Major irrigation projects in the Euphrates River Valley and elsewhere offer the prospect of increasing the supply of productive land. The declining population growth rate has reduced the pressure for land reform, and industrialization offers an alternative for landless farm workers, who prefer city life to that of rural areas.
Turkey's varied ecology allows farmers to grow many crops, yet the bulk of the arable land and the greater part of the farm population traditionally have been dedicated to producing cereal crops, which supply 70 percent of Turkey's food consumption in terms of calories. As of 1992, cereal crops occupied 12.5 million hectares or more than half of the country's cultivated area. Wheat accounted for about 9 million hectares of this area, and barley for about 3 million hectares. Other grain crops include rye, millet, corn, and rice. Grains are produced in most parts of the country (see fig. 9).
Small or subsistence farmers produce most of Turkey's grain. Because most fields depend on rainfall, production varies considerably from year to year. Farmers traditionally have left grain fields fallow for a year to allow water to accumulate in the soil. Although the government encourages planting soybeans as a secondary crop following the wheat crop, farmers have been slow to adopt the practice. The integration of forage crops into crop rotation and the elimination of fallow periods offer the possibility of increased soil fertility and moisture retention.
Wheat has long been the basic food in the Turkish diet, generally eaten in the form of bread--of which Turkish per capita consumption ranks among the highest in the world. Farmers consume about half of the crop; the other half moves through commercial channels. The Soil Products Office buys up to one-fifth of the crop at support prices, which largely determine the prices for the open market, and handles most imports and exports of grain.
Production increases in the late 1970s turned the country into a wheat exporter. After 1980 the country also imported small amounts of high-quality wheat to improve baked products. Steady increases continued in the 1980s, with wheat production averaging 15 million tons. Even in the drought-stricken 1989 harvest, wheat production totaled 16.2 million tons. By the early 1990s, wheat production was averaging 20 million tons per year.
Barley production did not rise substantially after the 1960s; crops averaged 6 million tons per year in the 1980s and 7 million tons in the early 1990s. One reason for the slow growth in barley production was a change in dietary habits: whereas barley previously had been a staple food, it came to be used almost exclusively as animal feed or for export. Harvests of corn, which is also used for feed, increased from an average of about 1.1 million tons per year during the 1970s to around 2 million tons per year in the early 1990s (see table 7, Appendix A).
Turkey is the main pulse producer in the Middle East, and pulse output increased dramatically from an annual average of 617,000 tons in the 1970-75 period to more than 1.1 million tons in the 1980-85 period. By the early 1990s, however, pulse output had fallen to about 860,000 tons in 1990 and 610,000 tons in 1992. The country made a major effort to meet the increased demand for dry beans, lentils, and peas in the Middle East, and exported increasing amounts during the 1980s. Nevertheless, declining export demand in the 1990s and better opportunities in raising other crops led to falling output.
Cotton is the major industrial crop in terms of value, supplying seed for vegetable oil and fiber for textiles, a major export. In the 1950s and 1960s, cotton cultivation increased rapidly following the introduction of new varieties and the extension of irrigation. The main cotton areas are on the coastal plains of the south and southwest, where yields have exceeded international averages since the 1950s. Annual output of cotton lint rose from about 145,000 tons in the early 1950s to about 600,000 tons in the early 1990s. Exports averaged 10 percent of production in the early 1990s, having fallen from around 30 percent in the 1980s.
Tobacco is a classic industrial crop, but output rose relatively slowly after World War II, reaching about 200,000 tons per year by the 1980s and 300,000 tons by the early 1990s. European consumers' preference for Virginia tobacco was a factor in the slow expansion, although foreign investment in the domestic tobacco industry in the 1980s spurred production.
Sugar beet production expanded in the 1950s and 1960s, leveling off at a rate sufficient to produce an annual average of 677,000 tons during the first half of the 1970s. The yield met domestic needs and allowed limited exports. Production jumped sharply, to about 1.5 million tons in 1981, and ended the decade at around 11 million tons in 1989. The annual average in the early 1990s was 14 million tons.
Oilseed cultivation expanded during the 1980s and 1990s, but harvests averaging about 2 million tons in the latter half of the 1980s and early 1990s continued to lag behind consumption, causing Turkey to import vegetable oils. Production of sunflower seeds, the main source of edible oil, declined, and the use of degenerated seed resulted in lower oil production. In 1987 Turkey produced 1.1 million tons of sunflower seeds; by 1992 production had declined to 950,000 tons. Olive production has experienced a two-year cycle with small crops every other year.
Cultivation of opium poppies as a field crop traditionally was fairly extensive in parts of the Anatolian Plateau. The opium gum had cash value, and the plant served villagers as food, forage, and thatch. Official figures showed that during the second half of the 1960s, annual production of opium gum averaged about 110 tons per year. During this period, the crop played an important role in the international illegal drug trade. With the United States pushing for a ban on poppy cultivation, after 1974 the Turkish government strictly controlled poppy harvesting, requiring that the mature pod be removed and processed at a state-run plant. During the first half of the 1990s, the area sown with opium ranged from 7,000 to 19,000 hectares, producing between 3,700 and 13,700 tons of opium pods. Most observers believed that government measures were effective in keeping opium derivatives in legal channels without causing undue hardship to farmers.
During the mid-1990s, cultivation of fruit, nuts, and vegetables contributed nearly 33 percent of the value of crop production, although such cultivation occupied only about 13 percent of cultivated land. Improved export possibilities led to the expansion of fruit and vegetable hectarage during the 1980s and 1990s; in 1991 about 593,000 hectares were devoted to green vegetables, tomatoes, and other produce, of which about 20,000 hectares were grown in greenhouses. Turkey is a major producer of high-quality hazelnuts, despite stiff competition in international markets from rising production in Spain, the United States, and Italy. The annual crop averages 400,000 tons per year, roughly half of which is exported. Turkey is also a major producer and exporter of various fruits, including grapes, sultana raisins, citrus fruits, and melons. Total fruit and vegetable exports yielded Turkey nearly US$1 billion per year in the early 1990s.
Animal husbandry is an important part of Turkey's agricultural sector and economy. Livestock products, including meat, milk, eggs, wool, and hides, contributed more than 33 percent of the value of agricultural output in the mid-1990s. Sheep and cattle are kept mainly on the grazing lands of Anatolia. Despite growing demand for animal products in Turkey's cities as incomes rose, animal numbers were static in the 1980s and fell in the early 1990s. Although yields were growing, traditional methods kept the livestock industry from achieving its considerable potential. Only 20 percent of cattle, for example, were high-yielding variety breeds. The oil boom in the Persian Gulf, however, led to an expansion of export markets and to major investments in the meat industry of the eastern Turkish towns of Erzurum and Van. In 1992 meat exports totaled US$140 million; exports, however, were being hurt by the UN embargo on Iraq. Wool is also a significant export. Traditional Turkish sheep varieties produce a coarse wool suitable for carpets and blankets rather than clothing. Merino sheep, which produce a finer wool, have been introduced in the Bursa region.
During the 1950s, officials expected that livestock production would decline as grain cultivation increased at the expense of grazing lands. In fact, the period of most rapid expansion of grain cultivation also saw an upswing in the number of farm animals. One result was overgrazing of grasslands, wasteland, forests, and mountain meadows, which damaged the soil, although not enough to reduce the size of herds. Another result was smaller, less productive animals. Cattle, which process coarse forage less efficiently than sheep and goats, suffered most from the loss of grazing land, but nearly all animals produced less meat and milk and fewer offspring.
Farmers made a modest beginning toward improving livestock production techniques in the 1980s, but traditional practices were hard to change. Even if they have no land, most village families own a few animals. Animals essentially scrounge for an existence, foraging on crop stubble, weeds, and grass on fallow land, and on uncultivable grazing areas. Few farmers integrate livestock production with cropping activities or match feed supply to their animals' requirements. Rural families raise livestock on land that lacks alternative uses, but the system does not allow the high levels of production necessary to meet the needs of the rapidly expanding population. Moreover, overgrazing has caused environmental damage that is difficult to repair.
Data on the livestock industry are poor but indicative of general trends. Official statistics reveal that recent years have seen changes in the relative roles of various animals in the farm economy. Given Turkish dietary preferences, sheep have relatively high value and increased in number from about 36.8 million head in 1970 to about 40.4 million head in 1992. The number of goats declined during the same period, from about 18.9 million to about 10.7 million because of grazing restrictions in forests and government policies encouraging herd reduction. The use of tractors probably has caused the decline in the number of oxen. Cattle, which have risen in value as farmers strive to meet the growing urban demand for milk, increased in number from about 2.1 million in 1970 to about 11.9 million in 1992.
Livestock output has increased over the years, although less rapidly than demand. In the early 1980s, the country was essentially self-sufficient in milk products, producing about 5.2 million tons per year. By the early 1990s, milk output had doubled, to 10 million tons per year. Annual meat production averaged 660,000 tons per year; this figure, however, represents only an estimate because most slaughtering occurs outside official slaughterhouses. During the 1980s, the price for red meat increased sharply, leading to a fall in domestic meat demand and an increase in poultry consumption. However, meat demand was partially sustained by exports of live animals--some of them smuggled over borders--to Middle Eastern countries, especially Iran and Iraq. The UN embargo on Iraq hurt domestic meat exporters after 1990.
Poultry production expanded rapidly after 1980 and appears capable of rising with demand as incomes increase and diets begin to include animal products. Poultry exports to Iran and Iraq also grew in the 1980s but fell somewhat in the 1990s. Many Turkish poultry operations are small, producing between 5,000 and 10,000 fowl at a time. However, larger, integrated operations have also been established, particularly in urban areas. One, Yupi of Izmir, claims to be one of the largest poultry producers in the world. By 1992 Turkey had 134 million head of poultry, double the number that it had had in 1987.
Forestry contributes little to the economy, but it holds potential for future development. In the early 1990s, Turkey's forests covered an estimated 20.2 million hectares, or 201,990 square kilometers (26 percent of the land area). Official statistics indicate that forests have doubled in size since 1950; the figures do not reflect actual growth in forested areas but rather continuing survey efforts and the inclusion of less productive wooded areas under the jurisdiction of the forestry administration. The most productive lumber area is the Black Sea region, followed by central, western, and southern Anatolia, where mostly pine wood is produced. The forests in the eastern part of the country are in poor condition and yield little besides firewood. Many forests are overmature because of poor management and infrequent cutting, and thus only about 20 percent of the total forested area is commercially exploitable.
By the mid-1950s, the state had taken over all forest areas from private owners. Compensation was largely in the form of access to fuel wood at low prices. The one-third of the rural population that lives in or near forests includes many of the country's poorest families. The bulk of their income comes from farming; forest products provide supplemental income and fuel. The main objective of forest management is control of traditional logging and grazing rights; the lack of alternative fuel supplies makes it impossible to stop illegal wood harvests in state forests.
The General Directorate of Forestry in the Ministry of Forestry has assumed responsibility for logging and reforestation operations and for reducing erosion. Whereas wood production has been substantially below potential, partly because of a lack of equipment and roads, reforestation efforts increased Turkey's wooded area by about 2 percent between 1977 and 1981. During the early 1980s, annual wood production averaged 5.2 million cubic meters of lumber. By 1991 production had risen to about 6.5 million cubic meters.
Despite the country's long coastline and large freshwater bodies, fishing is an underdeveloped industry. The Black Sea and the Sea of Marmara constitute the main fishing grounds. The tonnage of the fishing fleet has increased, but in the early 1990s it still included about 7,000 traditional boats, some 1,500 of which lacked motors. The annual catch rose from around 430,000 tons in 1981 to about 625,200 tons in 1988, but declined to about 365,000 tons in 1991. Frogs' legs, snails, shrimp, and crayfish are exported to Europe.
Turkish modernizers have long struggled to build an industrial system that would help restore the country's economic power. The import-substitution strategy followed until 1980 was designed to make the country an independent producer of manufactured goods. The result was a striking unfolding of industry, especially between 1950 and 1977, when the sector (including energy and natural resources) grew at an annual average rate of 8.6 percent in real terms, expanding its share of GDP from about 12 percent to about 25 percent. Despite the retrenchment of the early 1980s, the recovery of the industrial sector--which registered an average annual growth rate of 5.9 percent between 1987 and 1992--restored the sector to its pre-1980 proportion of more than 23 percent of GDP in 1993. By the early 1990s, industry was broadly based; the only individual industries accounting for more than 5 percent of industrial output were food processing, petroleum, textiles, and iron and steel.
Under the republic, the Turks have vastly improved their country's infrastructure and have achieved the ability to produce a wide range of products. The country's first factories processed food, such as sugar and flour, and nondurable consumer goods, such as textiles and footwear. Next came intermediate industrial products, including iron and steel, chemicals, cement, and fertilizer. By the end of the 1970s, the country was developing capital goods industries and high-technology products. Production of trucks and buses in cooperation with the West German firm Mercedes-Benz, and of F-16 fighter aircraft with the United States firm General Dynamics, indicated Turkey's industrial ambitions.
The press for rapid industrialization minimized the attention given to efficiency, and excessive protection forestalled competition that would have promoted efficiency; selling in the protected home market was much more attractive than attempting to export. Moreover, the rise of montage industries, which assembled such products as motor vehicles, consumer durables, and electronic goods primarily using imported components, meant that industrial growth required ever more imports. Hence, attempts at import substitution paradoxically tended to aggravate the country's trade balance. The capital-intensive nature of many industrial investments, especially those in the intermediate goods sector, caused employment in industry to grow relatively slowly, contributing to structural unemployment. Dependence on imported petroleum made the country highly vulnerable to increases in oil prices.
By the end of the 1970s, industry had reached a turning point. In the short run, the sector needed to overcome shortages of energy, imported machinery, parts, and processing materials that had caused a decline in industrial output during the last years of the decade. In the longer run, to become more efficient and to enable increased exports, the industrial structure had to be adjusted in accordance with the country's comparative advantages. In effect, industry would have to transfer resources out of uncompetitive industries to favor those that could compete in world markets. The difficult adjustment process started during the early 1980s, and substantial progress was made under the Özal team. Under the new outward-oriented development strategy, as under the old import-substitution policies, industry was to be the leading sector of the economy. Industrial performance--especially in export markets--would determine if that strategy would be successful.
Many of the problems of import substitution had not yet been overcome by the mid-1990s. Much progress had been made in spurring private-sector-led industrialization, particularly in light manufacturing and export promotion, however. Light manufactures and iron and steel accounted for an increasing proportion--and since the 1980s, the majority--of exports. Moreover, foreign investment in the industrial sector, made either directly or through the stock market, had begun to have a positive impact on Turkish industry. However, much of industry was still dominated by the public sector in early 1995, and private-sector companies still depended on crucial inputs from public-sector industries.
In line with the shift to an outward-oriented development strategy, in 1980 Turkey's policy makers began to revamp the country's industrial policy. The new policy set forth four related goals for industry: upgrading the role of market signals in decision making, increasing manufacturing exports, enlarging the private share in manufacturing, and reforming the SEEs to reduce inefficiency. In the early 1990s, a fifth goal was added: privatization of public-sector entities. Policy makers were also concerned with obtaining adequate energy supplies and providing enough work for the growing labor force.
Turkey is relatively well endowed with energy and mineral resources. The extensive mountainous terrain provides numerous hydroelectric sites, although most are far from the main population and consumption centers. The country also has substantial exploitable lignite resources and small reserves of hard coal, petroleum, and natural gas. Commercially exploitable deposits of many minerals have been located, but the territory has been surveyed only partially. Exploitation of these natural resources has occurred relatively slowly.
The combined demands of industrialization and urbanization nearly tripled energy consumption in the 1960s and 1970s. An inappropriate pricing policy, especially the subsidy of petroleum that led to unduly cheap products, was one cause of shifts in the sources of energy that exacerbated shortages. In 1960 more than half of the primary energy consumed came from noncommercial sources, mainly firewood but also manure and other agricultural wastes. These noncommercial sources, plus domestic coal and lignite, accounted for more than 80 percent of all primary energy consumed; oil supplied only 18 percent. By 1980, in contrast, oil supplied about 47 percent of the primary energy consumed, coal and lignite about 21 percent, hydroelectric power 8 percent, and noncommercial sources such as firewood and animal wastes only 23 percent. By 1992, 43.5 percent of final energy came from petroleum, 31.1 percent from lignite and hard coal, 4.1 percent from hydroelectric power, 6.9 percent from natural gas, and 14.4 percent from other energy sources, including solid fuels, geothermal, solar power, and wind power.
During the 1970s, the demand for electricity began to exceed supply, and by the late 1970s the power gap began to constrain industry. After 1977 rotating blackouts affecting industrial, commercial, and residential consumers were necessary to meet demand. By 1979 the shortage of foreign exchange had so restricted imports of crude oil that fuel for cars, trucks, and tractors had to be rationed. In the mid-1980s, in an attempt to deal with the energy shortage the Özal administration launched the build, operate, and transfer (BOT) system, under which foreign investors would provide the capital and technology to build plants, operate them for a number of years with guaranteed revenues, and finally transfer the units to the government when the investment had been fully returned. The Atatürk Dam was a major project designed to increase electricity output. Its first two power units came on line in 1992.
Although Turkey's energy resources remained underdeveloped in early 1995, the country had relatively good energy production potential. One estimate places the economically feasible hydroelectric potential at around 29,500 megawatts, which would allow annual production to reach roughly 100,000 gigawatt-hours in years with normal rainfall. Lignite is the second most important potential source of energy, with proven and probable deposits put around 6.4 billion tons. However, Turkish lignite, containing high amounts of water and sulfur, is hard to burn and pollutes the air. Turkey's proven and estimated petroleum stocks are equivalent to about three years' consumption. Proven reserves are estimated at about 16 million tons, and enhanced oil-recovery techniques may allow extraction of another 30 million tons. Proven reserves of natural gas total about 12.4 billion cubic meters, and reserves of hard coal about 1 billion tons. Turkey's geothermal resources are considerable, but they have not yet been systematically explored.
Imports of petroleum averaged more than 15 million tons per year in the early 1980s and increased to about 23 million tons in the early 1990s. Most of Turkey's oil fields are located in southeastern Anatolia near the borders with Iran, Iraq, and Syria (see fig. 10). Because of the country's fractured substrata, deposits are often contained in small pockets, which makes exploration and extraction difficult. In 1985 exploration proved that Turkey has oil deposits at very deep levels, but it was not known how large the deposits might be. Shell Oil determined that oil at Paleozoic levels would be recoverable, and other investigations proved significant deposits in central Anatolia under the salt flats in the plain north of Konya. In 1991 British Petroleum began exploring for oil in offshore areas of the Black Sea. It is also suspected that the Aegean shelf contains considerable petroleum deposits, but as long as relations with Greece remain strained, conflicting claims to the Aegean seabed limit prospects for exploration. To speed up the exploration process, the Turkish government in 1983 eased regulations on such activities by foreign oil companies, allowing them to export 35 percent of production from fields they discovered in Anatolia and 45 percent from offshore fields. Although several foreign concerns started exploration after the liberalization package went into effect, up to the mid-1990s no major finds had been reported.
The state-owned oil company, Turkish Petroleum Corporation (TPAO), Shell Oil, and Mobil control most petroleum output, which had climbed gradually to a peak of 3.6 million tons in 1969 but declined to about 2.1 million tons in 1985 as deposits were depleted (see table 8, Appendix A.). By the early 1990s, output had increased once again to nearly 4.4 million tons. The main petroleum project during the 1980s was an attempt at secondary recovery at the Bati Raman fields in southeastern Anatolia, which were expected to produce roughly 1.5 million tons a year over a twenty-year period.
TPAO stepped up oil exploration efforts at home and abroad in the hope of raising output. But prospects for new domestic finds were endangered by the escalating conflict with Kurdish rebels in southeastern Turkey. Western operators in the area were nervous after a sharp increase in the number of attacks on oil installations. Mobil suspended operations at its 3,200-bpd Selmo field and other small sites after Kurdish attacks on its staff. In the early 1990s, talks were underway on a possible transfer of the Selmo operation to TPAO. Shell Oil's rig near the 25,000-bpd Batman refinery was also hit, although operations there continued. TPAO reported no attacks. Total Turkish production in 1993 of about 78,600 bpd--down from about 84,500 bpd in 1991--met 17 percent of the country's 458,000-bpd needs. The state firm in 1993 pumped about 60,550 bpd, Shell Oil about 14,500 bpd, Mobil about 3,230 bpd, and Aladdin Middle East about 330 bpd. On several aging fields, rising water content has halved productivity. TPAO drilled sixty exploration wells in 1993, only one of which hit oil. In 1994 it planned to drill eighty-one, stepping up work outside the affected southeast. Meanwhile, Mobil was doing seismic work in central and southern Turkey, and Shell Oil and United States Arco were both exploring in the southeast.
TPAO's joint venture in Kazakhstan, which holds seven concessions, should help to increase the company's oil reserves. In addition, preliminary tests in 1993 near Aktyubinsk and Atyrau were promising. It is expected to be several years, however, before the oil or gas reaches Turkey, given the need to work out export routes or an exchange agreement with Russia. Turkish sources are cofinancing the venture with the Kazakh state oil company. The project is TPAO's first major overseas enterprise, although its subsidiary, the Turkish Petroleum International Corporation, holds concessions in Australia, Pakistan, and Egypt.
Five refineries with a total capacity of about 713,000 bpd meet most of the country's need for petroleum products. Until early 1995, about 85 percent of refinery capacity was in public hands in four refineries located at Aliaga near Izmir, Kocaeli, Kirikkale, and Batman. A fifth refinery, jointly owned by Mobil, Shell Oil, British Petroleum, and a Turkish company, is located at Mersin.
In early 1995, Turkey's privatization program appeared to be back on track after a period of wrangling over the legality of the sale of the state refinery company TÜPRAS and the retail company Petrol Ofisi. The sale of part or all of each company is scheduled to take place before the end of 1995.
Petrol Ofisi's 4,000 stations control 56 percent of a domestic gasoline market that since 1987 has grown by an average of 5.5 percent a year to 94,000 bpd. Full privatization is expected by the end of 1995.
A TPAO pipeline extends for nearly 500 kilometers from the oil fields near Batman to Dörtyol on the Mediterranean coast. The corporation also owns and operates the Turkish section of the pipeline from Iraq's Kirkuk fields to a port facility near Dörtyol. This pipeline was enlarged in 1984 to carry 1.1 million bpd, a share of which Turkey purchased at preferential rates. A second, smaller-capacity Kirkuk-Dörtyol pipeline was built in the late 1980s, which increased capacity to 1.5 million bpd. Oil flows through the two pipelines ceased after the UN embargo on Iraq was imposed in 1990. The pipeline cannot be used for domestic oil because according to international law the oil in the pipeline at the time of the embargo must be stored, awaiting UN disposition.
Apart from the country's own oil prospects in the Black Sea, Turkish officials see their nation as a strategic hub bringing oil from Azerbaijan and Kazakhstan to the Mediterranean and connecting Turkmenistan and possibly Iran to the European gas network. Turkish officials have pushed their own brand of pipeline diplomacy, encouraging the nations of Central Asia and the Caucasus--as well as Iran--to cooperate so that they can start exporting their prime resources to the outside world via Turkey.
The Turks are convinced that at least some of the projects eventually will come to fruition, beginning with a projected pipeline to bring Azerbaijani crude to the eastern Mediterranean. In the early 1990s, the governments of Turkey and Azerbaijan officially approved plans for such a line. But a series of obstacles remained to be overcome, including rival pipeline projects that would bypass Turkey, border disputes that would render key intervening areas dangerous, and even a degree of antagonism toward Turkey on the part of some neighboring states. The most immediate challenge was the effort to bring oil from Kazakhstan's Tengiz field to the Russian Black Sea port of Novorossiysk, which would mean an upsurge in tanker traffic not only in the Black Sea, but also in the Bosporus and Dardanelles. Turkey has opposed this project vehemently but is constrained by international conventions that guarantee passage between the Black and the Mediterranean seas. In some places, the straits are only 800 meters wide, and the Bosporus bisects Turkey's largest city, Istanbul. The threat to one of the nation's greatest attractions has turned Turkish officials into ardent environmentalists.
Natural gas became important in the 1980s. Gas tapped in Thrace (Trakya, European Turkey) was piped to the Istanbul region and used to produce electricity, thereby reducing the need for energy imports from Bulgaria. In 1986 Turkey began construction of a pipeline to carry Soviet natural gas from the Bulgarian border to Ankara; the line was completed in the late 1980s. In 1990 government officials announced that they also desired to purchase natural gas from Algeria, a move that would help balance Turkey's large purchases from the Soviet Union.
Policy makers in the early 1970s had targeted lignite as the most abundant domestic source of hydrocarbons, and production grew rapidly from an average of about 7.9 million tons for the 1970-75 period to more than 31 million tons in 1985. Mines operated by the state-owned Turkish Lignite Company are responsible for about two-thirds of output; private firms produce the remainder. Production of hard coal is entirely controlled by the government-owned Turkish Coal Company, which suffers from poor management and outmoded technology. Coal production is also hampered by the great depth of the country's deposits. Hard coal output fell from around 6.5 million tons in 1976 to about 3.8 million tons in 1983, and unit costs exceeded those of coal imports. As a result of these trends, Turkey is beginning to import coal for use in power plants. In 1992 Turkey produced about 12 million tons of coal and imported a net of about 4.2 million tons.
The Turkish Electricity Authority (Türkiye Elektrik Kurumu--TEK) is responsible for most electric power generation and distribution. In Adana the Cukurova Electrical Company produces some electricity privately. In Kepez, a city in Antalya Province, another private company produces electricity. Upgrading of the national distribution grid began in the 1980s, and by 1985 about 70 percent of Turkey's villages were receiving electricity. The Fifth Five-Year Plan (1984-89) called for the completion of village electrification by 1989; by the mid-1990s no village was without electricity.
Demand for electricity has increased rapidly, in large part because of the growth of industry, which consumed more than 56 percent of electricity in 1992. By 1985 thermal plants produced 53 percent of total installed capacity; hydroelectric plants produced the remainder. During the early 1980s, shortages of electricity had to be covered with imports from Bulgaria and the Soviet Union. In 1984 Turkey and the Soviet Union agreed to build a second transmission line that would allow future increases in Soviet electricity deliveries. Although in the 1990s electricity imports meet less than 1 percent of Turkey's needs, the Turks want to be independent of supplies from unreliable neighbors.
Sources for generating such electricity varied. By 1992 electricity generated by coal accounted for 36 percent of total installed capacity, with hydroelectric plants accounting for 40 percent. The rest was generated using petroleum products.
Turkey's chronic energy shortages make development of hydroelectric power imperative. In 1994 the General Directorate of State Hydraulic Works was building or planning to build about 300 hydroelectric plants. The centerpiece of Turkey's ambitious hydroelectric program, the Southeast Anatolia Project, which includes dams on the Tigris and Euphrates rivers, will increase Turkey's irrigable land about 25 percent and its electricity-generating capacity about 45 percent. As of early 1987, the first two of the three large dams in the program (the Keban Dam and the Karakaya Dam, both on the Euphrates, northeast of Malatya) had been built, and the third, the Atatürk Dam, was under construction, completed in 1994. The World Bank refused to help finance the construction of the Atatürk Dam because Turkey had not reached an agreement on sharing the water of the Euphrates River with Syria and Iraq; Turkey, however, arranged independent financing.
Turkish officials had long discussed the possibility that nuclear power might help the country address its energy problems. During the 1980s, the military government drew up a nuclear energy program and established the Nuclear Power Plants Division of the Turkish Electricity Authority to make feasibility studies and to build nuclear plants. Given Turkey's desire to diversify its energy sources, nuclear power was expected to remain on the agenda. By early 1995, however, no electricity had been generated from nuclear power.
Although Turkey has made a good start at addressing its energy problems, some analysts feel that more attention needs to be paid to conservation and pricing policies to limit the growth of demand. Industry is the major consumer of energy, and industrial consumption is expected to grow rapidly if left unchecked. The most energy-intensive sectors of industry, such as iron and steel, food processing, textiles, mining and nonferrous metals, chemicals, cement, and bricks and ceramics, probably could reduce demand significantly if required to do so. However, the government needs to audit major energy users to discover which could cut back consumption. In addition, a shift in relative energy prices to reflect long-run costs might induce industrial restructuring that would take Turkey's energy endowment into account. Moreover, energy policy makers need to improve management of firewood and agricultural wastes, which continue to play an important role in the rural energy economy.
Turkey's most important minerals are chromite, bauxite, and copper. The country also exploits deposits of other minerals such as iron, manganese, lead, zinc, antimony, asbestos, pyrites, sulfur, mercury, and manganese. Mining contributed slightly under 2 percent of GDP in 1992, but the subsector provides the raw material for such key manufacturing industries as iron and steel, aluminum, cement, and fertilizers. Turkey exports a variety of minerals, the most important of which are blister copper, chrome, and boron products. Minerals accounted for an average of about 2 percent of export earnings in the mid-1990s. The public sector dominates mining, accounting for about 75 percent of sales. Etibank, set up in 1935 to develop Turkey's natural resources, manages most of the state's mineral interests, particularly bauxite, boron minerals, chromite, and copper.
Private-sector mining enterprises are generally small, concentrating on lead, zinc, and marble; some operate intermittently depending on market conditions. A 1978 law nationalized all private holdings, but it was only partially implemented before being invalidated by the Constitutional Court. In 1980 the government began to encourage foreign investment, and in 1983 and 1985 mining laws were revised to provide incentives for private investment. Etibank sought to encourage joint ventures with private firms in Turkey and foreign investors. Although some partnerships were struck, mainly for copper production, foreign and private investors in 1995 continued to hesitate to make major investments.
Turkey's manufacturing industries are diverse and growing. Public-sector entities dominate manufacturing, accounting for about 40 percent of value added. Private-sector firms are dominated by a number of large conglomerates that have diversified across several industries.
The manufacture of textiles is Turkey's largest industry, very competitive in international markets, and the most important foreign-exchange earner. Domestic cotton and wool provide much of the raw material for the industry, but synthetics production has also expanded. The textile sector contributed 20 percent of total manufacturing output and employed 33 percent of all workers in the mid-1990s. Textiles are produced by factories controlled by the country's largest SEE, Sumerbank, and a number of private firms. Installed capacity is equivalent to around 33 percent of that of the EU in terms of cotton spinning and around 11 percent of EU woolen yarn and textiles. In 1994 Sumerbank was identified as a likely candidate for privatization.
Textile exports grew rapidly after 1980, but protectionism in industrial countries, including the EC nations and the United States, threatened the sector's growth. Nonetheless, between 1987 and 1992 textile export values expanded at an average annual rate of 19 percent. By 1992 textiles accounted for 35 percent of total exports. Investment in increased capacity in the 1980s resulted in increased exports of finished products and ready-made garments. In 1990 the administration of President George Bush increased the quota for United States textile imports from Turkey by 50 percent to compensate for Turkey's economic problems caused by sanctions on Iraq.
Agroprocessing is one of the most dynamic branches of Turkish industry, supplying both domestic and export markets. Main product lines are sugar, flour, processed meat and milk, and fruits and vegetables. Processed food exports grew at an average rate of 8 percent per year between 1987 and 1992, accounting for 9 percent of total exports.
SEEs are the most important producers of intermediate goods, although private firms are also active. The iron and steel sector has become more competitive in adjacent Middle Eastern markets, where Turkey's location is an advantage. However, competitiveness results largely from heavy subsidies to the state companies. Two-thirds of Turkey's steel is produced by three public-sector steel mills, which remain heavily subsidized. Twenty smaller private plants produce steel from arc furnace operations. Public plants include the old and outmoded mill at Karabük, the Eregli works completed in 1965, and the plant at Iskenderun, which was built with Soviet aid and opened in 1975. The overstaffed Iskenderun plant, although the largest and most modern, performs poorly. Private plants, often more profitable than state plants, tend to use scrap as a raw material and to export to neighboring countries. In December 1994, the government indicated that 51.7 percent of the Eregli Iron and Steel Works would be privatized in 1995. This company was cited as one of the most profitable in Turkey, especially after a US$1.5 billion upgrade designed to raise raw steel capacity by one-third, to about 3 million tons annually.
Capacity use in the iron and steel sector increased rapidly in the 1980s and early 1990s. Total output of crude iron grew from about 3.1 million tons in 1985 to about 4.5 million tons in 1992. Steel ingot output rose from about 7 million tons in 1987 to 10.3 million tons in 1992. The value of exports of iron and steel rose from US$34 million in 1980 to US$1.6 billion in 1992. Such exports accounted for around 10 percent of total exports.
The demand for cement also increased in the late 1980s and early 1990s as a result of an upswing in domestic construction stimulated by infrastructure and housing projects. The cement industry consists of a large SEE, the Turkish Cement Corporation, and a number of smaller companies. Until 1970 the country imported most of its cement, but it has since become self-sufficient. Total output increased from 22.7 million tons in 1987 to 28.5 million tons in 1992. Exports of cement, especially to the Middle East, grew rapidly in the early 1980s because of the construction boom in that region.
The chemical industry, one of the country's largest in terms of value, is concentrated in a few large state enterprises, including the Petrochemical Corporation (Petrokimya Anonimsirketi--Petkim) and Etibank, and some 600 private enterprises. Chemicals produced in Turkey include boron products, caustic soda, chlorine, industrial chemicals, and sodium phosphates. The high quality of the country's minerals gives it a comparative advantage in several products. Chemical exports increased during the second half of the 1980s but fell sharply in the early 1990s, mainly because of increasing competition and lower prices elsewhere. In the late 1980s, petrochemical production, dominated by Petkim, started with a complex at Yarmica, near Kocaeli, followed by a second at Aliaga, near Izmir. The complex includes twelve plants, seven subplants, a thermal power station, and a water supply dam. These plants supply small private-sector plants, which in turn manufacture finished products. The sector's goal is to make the country self-sufficient in petrochemicals rather than to export. In 1992 Turkey produced about 144,000 tons of polyvinyl chloride, about 238,000 tons of polyethylene, about 85,000 tons of benzine, and about 32,000 tons of carbon black.
Turkey's automobile industry, established in the mid-1960s, was gradually exposed to imports after 1980. Although the sector recovered from low production levels after 1983, domestic producers remain weak. Industry observers believe that Turkey's automobile makers are too numerous and too inefficient, but market prospects appear fairly favorable because of the low per capita ownership of cars. Car output rose from about 55,000 units in 1985 to about 300,000 units in 1993. Including trucks, buses, and tractors, Turkey produced about 345,000 units in 1992. Some 60,000 vehicles were imported in that year, a figure that should increase in the near future if Turkey gains entrance into the European customs union. Turkish producers benefit from a 20 percent tariff on foreign imports.
The Turkish automobile industry in 1995 consisted of three producers, each affiliated with a foreign manufacturer: Tofas, which assembles Fiat passenger cars; Oyak-Renault, which assembles Renaults; and General Motors, builder of Opel Vectras. Toyota in partnership with local conglomerate Sabançi Holding completed a plant in 1994 designed to produce 100,000 cars per year, and a Hyundai factory that would produce 100,000 units is scheduled to open in 1996.
The government, banks, and industry form a complex system through which legislation and government policies direct credit flows. Most state-owned banks were established to finance particular industries, whereas private banks generally have intimate connections with large industrial groups. The Central Bank of Turkey often provides credit to other banks at negative real interest rates. Banks, in turn, funnel credit to industries or groups they serve. The amounts available to particular sectors of the economy thus depend largely on the resources available to the institutions for that sector, rather than on market assessments.
The Central Bank set up a system of quarterly reporting in the mid-1980s, enabling timely warning of banks in difficulties. This reform was a start toward making banking more transparent, but it is still difficult to assess the condition of the banks. Strong political pressures to keep weak industries and groups afloat during the adjustment period make it likely that several years will pass before standard accounting rules can be systematically applied. Legislation introduced in 1993 sought to bring the Turkish banking sector into line with European standards on capital adequacy and other prudential ratios. However, in December 1993, the Constitutional Court blocked this legislation because the executive had enacted it without approval of the legislature. No further action had occurred as of early 1995.
Despite some setbacks, the government's new policies have effected rapid changes in the financial sector. The banking system in early 1995 consisted of the Central Bank and fifty-eight banks, including twenty-one foreign banks, divided between Ankara, where most state-owned banks are located, and Istanbul, the center for most privately owned banks. Turkey also had three state investment and development banks. The Development Bank is funded from the Treasury and invests in the private sector. The Export Credit Bank of Turkey (Türkiye Ihracat Kredi Bankasi) provides export finance. The Municipalities Bank (Iller Bankasi) supports local institutions. In 1995 nine merchant banks also operated in Turkey, six domestically owned and three foreign owned.
The Central Bank, founded in the early 1930s, has the usual central bank responsibilities, such as issuing banknotes, protecting the currency, and regulating the banking system and credit. The Central Bank also finances the government's budget deficits and makes loans to public and private banks. Starting in 1983, however, the Central Bank began to reduce lending and stepped up its supervisory functions.
Six of Turkey's commercial banks are in the public sector, and twenty-one are partly or wholly foreign owned. Of the banking sector's assets, 46 percent are concentrated in four banks: the oldest and largest public bank, the Agricultural Bank of the Republic of Turkey (Türkiye Cumhuriyet Ziraat Bankasi--TCZB); the Real Estate Bank (Türkiye Emlâk Bankasi As); and two private banks, Isbank and Akbank TAS. The TCZB has many branches in rural areas, a strong deposit base, and favored access to state credits, which it uses partly for the agricultural commodity price-support program. After 1983 the TCZB was forced to take over other banks that had failed, a move that reduced earnings.
Much as in Germany and Japan, the major private banks are closely linked to industrial groups. Yapi ve Kredi Bankasi, Pamukbank, and Interbank are owned by the Cukurova Group conglomerate. Akbank, reputed to be the most profitable private bank in Turkey, is owned by the Sabançi Group. Partially publicly traded Kocbank is owned by the Koç Holding Company. Tütünbank is owned by the Yasar Holding Corporation.
Before 1980 there were only four foreign banks in Turkey, but their numbers grew rapidly during the 1980s as the government liberalized conditions. Several joint ventures were created in the 1980s, as well as two Islamic banks specializing in trade finance.
Private banks remain the most vulnerable sector of the banking system because the public banks enjoy de facto state guarantees. During the 1980s, most private banks engaged in trade financing or in sales of state bonds because investment activity was depressed. The largest private banks maintained their ties to Turkey's major corporations despite a 1983 banking law enacted to discourage such links. Although a few private banks were able to eliminate nonperforming loans, many remained vulnerable to their customers' difficulties. By 1986 private-bank balance sheets began to improve, as several years of high-interest earnings made it possible for banks to write off bad loans.
Although the government, public enterprises, and private undertakings increased their use of stocks and bonds after 1970, capital markets remained underdeveloped in the 1970s. After the passing of the Capital Markets Law in 1982, a Capital Markets Board was established to issue regulations for institutions marketing bonds and other financial instruments. Most Turkish corporations were closely held and tended to finance expansion through their own funds from their small circles of stockholders. But in the 1980s, companies were allowed to issue profit-and-loss-sharing certificates with liability limited to the face value of the certificate. The Özal administration also took steps to revive Istanbul's stock market, which had closed down in the late 1970s. The Istanbul Stock Exchange (ISE) reopened in December 1985. With the rise of "emerging market" funds, trading on the ISE expanded rapidly in the early 1990s; indeed, it was the best performing of any market in 1993. Foreign investment accounted for 25 percent of the daily trading volume. In early 1994, however, the stock market crashed in the wake of the currency and balance of payments crisis. Plans for privatization of SEEs were expected to revive the stock market, if foreign investment and confidence in the government's attempts to stabilize the macroeconomic situation increased.
Government securities are quite liquid in secondary markets; this has been true especially since the Treasury began issuing T-bills in 1986 and an interbank market was established in 1987. Government T-bill issues jumped in the early 1990s as the budget deficit exploded. In 1986 the public snapped up revenue-sharing certificates used to finance the Keban hydroelectric project on the Euphrates; the Oymapinar Dam, also on the Euphrates south of Malatya; and a second bridge across the Bosporus. Such certificates were popular, in part because they conformed to Islamic strictures prohibiting interest. Low returns discouraged the government from using such certificates in the 1990s.
Turkey's long and varied sea coast, high mountains and lakes, and its many historical, religious, and archaeological sites (possibly including more Greek ruins than survive in Greece) give the country unrivaled tourist potential. Until the 1980s, Turkish tourism lagged far behind its counterparts in other Mediterranean countries, and visitors tended to stay for shorter periods of time and spend less money than in countries such as Spain, Portugal, and Greece. The Özal government's promotion of tourism in the 1980s led to dramatic change. The number of visitors grew rapidly during the 1980s and early 1990s, and Turkey was able to appeal to tourists from many different countries. Including business travelers, Turkey hosted about 1.3 million visitors in 1983 and 2.1 million in 1984, whereas Greece during the same period received at least 6 million and Spain 40 million visitors annually. By 1987 visits to Turkey had increased to about 2.9 million, and by 1992 close to 7 million.
In the early 1980s, most tourists came from European countries, especially Greece and West Germany, but the number of Middle Eastern tourists also increased. Even in the late 1980s, however, European tourists accounted for nearly 61 percent of total arrivals. By 1992 the European proportion had fallen to 45 percent.The largest increase was registered in tourists from the republics of the former Soviet Union. By 1992 they accounted for 43 percent of tourists, whereas the Middle Eastern share had shrunk from 11 percent to 8 percent.
Regional origin is a good predictor of the type of tourism and destination. Middle-class Turks, who started to take vacations in the early 1980s, usually prefer the beach resorts on the Aegean and Mediterranean seas. Tourists from Western Europe, Israel, and the United States tend to visit beaches and historical sites. East European tourists, particularly from the former Soviet Union, typically come to Istanbul or Black Sea towns to shop or barter goods. Tourists from Iran and other Middle Eastern countries generally take longer holidays in Istanbul and Bursa, also coming to shop in Turkey.
Although tourism earnings reached US$770 million in 1985 and jumped to US$3.6 billion by 1992, the industry has been plagued by political, economic, and environmental problems. The fallout from the nuclear power plant disaster at Chernobyl in the Soviet Union, terrorist attacks by Kurdish insurgents, and economic problems in Europe and the Middle East have tended to discourage tourism. Turkey has attempted to overcome these impediments by improving domestic services. The number of beds for visitors rose from about 49,000 in 1980 to about 206,000 in 1992, for example. The total will probably reach 600,000 by the end of the 1990s. One important effort, the South Antalya Project, involves transforming a seventy-four-kilometer stretch of Mediterranean beaches into a base for resort villages. Istanbul, the main tourist center, still lacks sufficient beds, however, and there is a tendency to concentrate on luxury hotels that are too expensive for middle-class tourists. Nevertheless, the mid-1990s saw a noticeable improvement in the average spending per day by tourists: US$141 compared with the world average of US$70-US$100. Shopping tours helped raise the average significantly.
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