In April 1992, CIPE sponsored its first program in the Middle East by holding a privatization conference in Ankara, Turkey. The decision to hold the conference in Turkey was perhaps a symbolic one, since Turkey has often been at the forefront of modernization in the region, both politically and economically. Fueled by the forces of globalization, the Turkish government embarked on an economic liberalization agenda as early as 1980. However for decades the Turkish economy was beset by high inflation and fiscal irresponsibility that resulted in three financial crises between 1994 and 2001. The victory of the Justice and Development party (AKP) in 2002 finally provided the strong, focused leadership needed to address the fundamental deficiencies of the economy. Supported by the IMF and prodded by the possibility of European Union (EU) membership, the AKP showed an unprecedented commitment to reform, which included sanitizing the banking sector, establishing new regulatory institutions, and strengthening the autonomy of the central bank. By overhauling economic governance structures, the government helped to achieve macro stability: between 2002 and 2007 the Turkish economy experienced an average annual growth rate of 7.5 percent, a drop in the rate of inflation from 60 percent to about 9 percent, almost a doubling of per capita income, and an influx of foreign direct investment (yearly average inflows of FDI increased from $1bn in 2000 to $22bn in 2007).
Throughout this reform process, CIPE has supported vibrant Turkish think-tanks and NGOs as they strengthen Turkey’s burgeoning democratic infrastructure. Projects have included working with:
- The Turkish Economic and Social Studies Foundation (TESEV), to study perceptions of corruption within Turkish society and to form a civil society coalition of business associations, labor unions, academics, and media to advocate anti-corruption policy proposals.
- The Association for Liberal Thinking (ALT), to provide much-needed information services to Turkish parliamentarians on issues of market economy and economic and democratic reform.
- The Center for Society and Economy (TEE), to promote a grassroots model of economic development by encouraging local leaders to develop their own economic development strategies.
- The Center for the Research of Societal Problems (TOSAM), to organize a series of leadership and citizenship training seminars in Southeastern Turkey (Diyarbakir, Batman, Mardin, Batman, Sanli Urfa, Adiyamin, and Sirrt) for Kurdish business people, local community leaders, and youth.
- The Association for Liberal Thinking (ALT), to bring together Islamic thinkers, academics, business people, and media to debate the compatibility of Islam and market economic principles within Turkish society at a major conference as well as at a series of seminars in various universities.
- The Anatolian Young Leaders Association, to help young women entrepreneurs identify solutions to common obstacles facing their entrepreneurial advancement through a 3-month training program.
- The Ekonomistler Platformu (EKP), to enhance the ability of region-based enterprises and business associations through an economic policy summit and through the launch of an on-line business association resource center specific to the Turkish business community.
With its eyes set on the EU, the AKP provided civil society a much more accommodating environment in which to operate, enabling the success of the aforementioned projects. Unfortunately, since winning an unprecedented 47 percent of the vote in the 2007 general election, the AKP seems to have lost the reformist zeal that made it so popular. After all, it was precisely this commitment to both political and economic reform that allowed the AKP to transcend the schisms that plague the Turkish politic and become a genuinely national party. The public has grown frustrated with the AKP who has abandoned a platform that brought together various elements of society for one that is much less inclusive. Moreover, the AKP party has been slow to respond to the global economic crisis. The value of the Turkish lira is down 26 percent, the budget deficit is expected to reach 7 percent of GDP this year, and the unemployment rate is at a 4-year high of 13.6 percent. The AKP may have been chastened by the March 2009 local elections where voters gave it only 39 percent of the vote. It is now incumbent upon the ruling party to reinvigorate its commitment to reform. Prime Minister Erdogan has reshuffled the cabinet and placed one of the AKP’s brightest members, former Foreign Minister Ali Babacan, to oversee all economic and financial institutions including state banks. The government now needs to conclude a new deal with the IMF, which would provide an anchor for tackling various structural problems including the huge informal economy.
Another major item on the agenda is passing a commercial code reform before the parliament goes to recess in July. The code would bring Turkey’s rules into line with international accounting standards and increase transparency and accountability. In recent years, CIPE has been working closely with the Corporate Governance Association of Turkey (COGAT) to encourage companies to improve their corporate governance practices. In light of the forthcoming revised commercial code, CIPE and COGAT have conducted a series of workshops to prepare small- and medium-sized businesses for compliance with these new governance requirements. By enacting safeguards against corruption and mismanagement, Turkey will attract more foreign investment and Turkish companies will have easier access to loans and partnerships. The passage of the commercial code is particularly important in the wake of the financial crisis, where Turkey has seen a huge flight of foreign capital.
Turkey has often been touted as a model for the Middle East because of its ability to reconcile democracy and Islam. A better model, perhaps, is the success of its economic reforms, which has allowed for a rising middle class from the Anatolian heartland through export-driven growth. The AKP has never hidden its affinity for engaging the Muslim world; what better way to make inroads in these countries than to be a shining example of market-driven reform. This can only happen, though, if the ruling party realizes the importance of sound governance.
This post is part of a blog series celebrating 25 of years of CIPE’s work by looking back at important moments in CIPE history, hallmarks of our achievements, and our successes today. Look for blog posts with tagged with “CIPE @ 25” to follow this series throughout our 25th anniversary year.
Published Date: June 10, 2009