The Finance Minister’s Improvement Agenda

Finance Minister Mehmet Şimşek is hopeful about 2010. He thinks that growth may reach double digits in the first quarter. He lists the three biggest problems of the Turkish economy as “unregistered activity”, “low saving rates” and “the need to transform traditional sectors”. Şimşek explains in full detail how they will fight against unregistered activity and aims to make significant progress in this regard through cooperation with several state institutions. He says that the support they have given to technology-intensive production through R & D reforms has begun to bear fruit and notes that the most famous companies in the world have begun to relocate their R & D centers to Turkey. He explains some of the series of new measures that they are planning to introduce in order to increase employment within the context of the Medium-Term Program, which is being implemented without the IMF. Şimşek says that they are aiming to reduce the public sector borrowing requirement and increase the resources available to the private sector and stresses that they will introduce new measures in many fields, including social security, health, local government and energy, in order to realize the targets of the Medium-Term Program.

Will Growth Exceed The Target?
Turkey survived the crisis period very strongly and has made a very good start to 2010. This is very positive, very encouraging for Turkey. I am very confident that this will continue. In the final quarter of 2009, the growth in the Turkish economy exceeded expectations at 6 percent. This growth figure shows that we have got over the effects of the crisis very quickly. When we compare the contraction of 4.7 percent in our economy in 2009, we see that, compared with the countries of the EU, we were one of the countries which contracted the least. Our forecast for growth in 2010, which is the first year after the crisis, is 3.5 percent. This is a very conservative estimate. We may increase this figure in the future as we apply the Medium-Term Program (MTP). The forecasts of many international institutions, including the IMF, World Bank and OECD, are higher than this estimate.

Determined Struggle Against Inflation
As a result of our determined efforts, inflation has fallen to its lowest level in the last 40 years. As of 2009, inflation had fallen to 6.5 percent. We foresaw that in the first half of 2010 seasonal factors and additional measures that we had taken would have an impact on inflation. These effects are temporary and in time will work their way through of the system. As a result, in February inflation rose to 10.1 percent but then, particularly as the result of a fall in the prices of unprocessed foodstuffs, fell to 9.6 percent in March. Inflation is expected to begin to fall again in the final quarter of the year as the temporary effects disappear.

Is The Mtp The New Anchor?
Turkey’s pursuit of a policy without the IMF is an extremely positive development. Our government has succeeded in maintaining budgetary discipline while also supporting growth, at least in terms of interest rates and credits, without any assistance from the IMF. We have declared the basic policies and targets for our exit from the global crisis in the MTP and the fiscal plan. The basic target in the program is to raise growth in stages to its potential level, to secure a relative increase in employment, to maintain the declining trend in inflation and to re-establish the public sector balances which were disrupted by the crisis. The program aims to reduce the public sector borrowing requirement and increase the resources available to the private sector within the context of the growth model set out in the program.

This program has a strong structural reform element. The MTP includes important steps that need to be made in several areas, such as social security, health, local government and energy. We have created a long-term financial anchor through fiscal rules. This anchor will result in us applying annual fiscal harmonization policies for the ideal budgetary balance and debt stock for 10-15 years in the future. The fiscal rule is perhaps the first time that Turkey has set a long term fiscal target and announced a program which shows how it will achieve the target. Applying it will not only make it easier for Turkey to make long term decisions but will be an important factor in opening the way for long term processes. In the period ahead, fiscal discipline and structural reforms will be the subjects on which we shall not make any compromises. As the Finance Ministry, we are currently taking the lead in legislating this fiscal rule and preparing the 2011 budget within the framework of the fiscal rule.

What Will Be Done Within The Context Of The New Reforms?

How Will The 2011 Budget Be Made?
The fiscal rule is one of the most important reforms. At the Finance Ministry, we are currently both legislating this fiscal rule and preparing the 2011 budget within the framework of the fiscal rule and taking a number of other measures. These measures include a number on the micro level and other more general reforms.

Tax Legislation Will Be Simplified
Tax legislation will be simplified and this is one of the things we shall do in this period. Another amendment is related to state aid. At the ministry we are taking measures to broaden the tax base. We have moved to e-bills. The requirement system has been reformed. We shall emphasize legal reforms regarding unregistered activities.

Competitiveness Will Be Increased
We need to improve the competitive environment in Turkey and increase our international competitiveness. We should do this on a number of axes. It is important to introduce flexibility into the labor market. We are making the legal amendments for this. At the same time, we need to be more competitive in the international arena in energy, training and infrastructure. We should look at this not just from an economic perspective but as a whole.

An Innovative And Entrepreneurial Structure
We are aiming to introduce reforms that will give Turkey a more innovative, productive and performance-based structure. These are not idle dreams but neither are they things that can be easily achieved if nothing is done. There must definitely be several second and third generation reforms. We are implementing reforms but we accept that there are steps which definitely need to be taken in order to achieve lasting results.

Answers To The Two Most Frequently Asked Questions

1- Tax Amnesty
Recently people have been asking mostly about a tax amnesty, tax reform, tax reductions and unemployment. I have stated before that I am opposed to a tax amnesty because it is contrary to equitable taxation and to tax harmonization. I believe that a tax amnesty is a great injustice and it is not on our agenda. Turkey ranks 29th out of 30 in the rankings of the tax burden in 30 OECD countries. This demolishes the myth that the tax burden in Turkey is very heavy. At the moment, we have absolutely no tax reductions on our agenda. Our priority targets are sharing the tax burden in an equitable manner, broadening the tax base and developing auditing standards.

2- Unemployment:
As everywhere else in the world, unemployment is one of the most important issues on Turkey’s agenda. But this is not a problem which is unique to us. Unemployment rose in many countries as a result of the crisis. Unemployment was 4.6 percent in the USA in 2007 but has risen to 9.7 percent according to the latest data. In the same period, unemployment in Spain increased from 8.3 percent to 18.8 percent. In Poland it went up from 9.6 percent to 12.7 percent, in Greece from 8.3 percent to 10.6 percent and in Hungary from 9.8 percent to 10.8 percent. As a result of the crisis, our government passed a number of measures to reduce unemployment, increase the qualified labor force, reduce the unregistered economy, and to maintain and increase employment. Employment will be our priority in the period ahead. We are determined to take the necessary measures in this regard.