Istanbul, May 12, 2006
HOW SHOULD TURKEY INTERACT WITH THE 21ST CENTURY’SNEW ECONOMIC POWERS:BRICs
*Panelist

Taking a quick look here, we can see here that emerging markets have been able to reduce their external debt levels over the past years. One indicator here is debt to the IMF. Brazil, Argentina and Russia have reduced this to zero. A similar picture is shown by FX reserves - China and Russia have huge amounts of FX reserves as you know, approximately 13 months goods plus services imports cover, and the average for emerging markets excluding Russia is about 5 months import cover. Turkey is now above this level. It has been able to purchase FX reserves in the past year in order to support its external balance in the case of any crisis situations.

Looking at emerging market bond spreads, this is the JP Morgan EMBI+, they have correspondingly fallen to record low levels - here around 170 basis points. This is the risk premium that foreign investors have to pay for emerging market debt. These are external debt.

The reforms again supported by the high liquidity from the US FED, high liquidity from Euro zone etc. have brought spreads down and enabled emerging markets to look forward now.

As we’ve discussed before, for Turkey one main problem is the current account deficit. However FDI in Turkey is picking up and I’ll come to that in a minute. We see FDI covering about 60% of the current account deficit this year so this should protect the Lira from any crisis situation again. Obviously if you compare Turkey to Russia, Mexico and Brazil, they all have a basic balance - in other words FDI plus current account - which is positive, and Russia is supported by extremely high oil prices bringing up their FX reserves.

That is the bottom line-emerging markets are looking good at the moment. They have a solid platform from which they can look forward, look ahead and that is why we are able to speak today about the BRICs, about the possibility of these countries moving forward. Looking at Turkey, obviously smaller than view but it will become the largest population in the Euro zone or EU by 2025. It has access to about 480 million people in th EU17, including Romania and Bulgaria, and another 300 million directly or indirectly bordering Turkey.

I’ll show you with figures in a minute, Turkey’s need to improve its trade balance with the BRICs. There is a strong trade position between Turkey, China and India that goes back about two millennia, if we look at the Silk Road. So the tradition is there, the potential is there, the country just has to build on it.

So looking at the population in Turkey, as I mentioned, by the year 2025, Turkey will have the largest population amongst the EU29 (including Turkey and Croatia)  - so it will increase above Germany’s population by the year 2025. It will also have the youngest population within the EU. This is assuming Turkey joins the EU. The red figures show you the working age population so the age between 15 and 59 in Turkey - that age group is going to be increasing to about 63% - whereas in Germany and in Western Europe, it will decrease to about 55% of the total population. So Turkey has a clear advantage there for the EU. The EU can also benefit from this and with President Sezer sending the bill back to Parliament now on the pension and health security reform bill because of the new age gap etc. the figures tell us very clearly that the working age population within the next 20 years is going to increase to about 63. So this should support the government’s reform program and should enable it to push through reforms which are very much needed in the whole of Europe.

Looking at this chart, what I’ve done is compare Brazil, China, Poland and Turkey between 2000 & 2004 - annual per capita net FDI - so this was the FDI that was coming each year into these countries per capita. In Brazil, this is about 100 dollars, in China just above 30 dollars, obviously a huge population there brings down the per capita level, and the gross amount is very high. If we look to Poland for example 180 dollars, Turkey between 2000 & 2004 was receiving about 20 dollars per year per capita. This situation changed in 2005 drastically. We had per capita net FDI into Turkey of 120 dollars, close to Poland’s level - so we’re moving forward here and this year we’re expecting higher levels.

Trade balance and BRICs: Turkey certainly has a need to improve the trade balance with China. Russia obviously has high oil exports - and obviously Turkey being the most dependent emerging market country on oil imports makes alternative power very important – which is why Turkey is planning nuclear power stations. An interesting point here is Iraq, with Turkey exporting about 2.5 billion dollars last year to the country, which shows the tremendous amount of potential that there is in the region in the future for Turkey.

The last point I’d like to emphasize is the importance of water for the future. This is a very important resource for the future and Turkey has plenty of it. The second point is that there is a large economic concentration in specific regions in Turkey like in the BRICs, and in contrast to BRICs, EU convergence provides Turkey with the possibility to push forward on a solid convergence and reform path. Normally a country would have to pay large sums to hire consultants for this reform process and adaptation of the legal system.

So, what does this chart show you? It shows you basically that Turkey has the largest fresh water resources in the European Union. Turkey already exports water to the region. It has started to export water to Israel. The future lies in water; there is the possibility of water pipelines. So in the future I would see oil pipelines in one direction and water pipelines in the other direction. And I think we have to start thinking about this because this is going to be something very important for the future from a geo-strategic point of view and from a peace perspective point of view. What about the internet? Turkey is at the bottom of the spectrum of EU internet access. 7% of households have internet access, which is vital for distance learning. Education, given the size of Turkey is vital to strengthen democracy and also women’s rights and it is vital to help secure the important millennium development goals of the UN. The regional disparity is very clear here. We have Marmara with a population of 19 million and per capita GDP of about 5800 Euros. The Southeastern area has a population of about 14-15 million, and per capita GDP of 2000 Euros. This has to be changed and this will help Turkey move into the future.

Finally, what are the consequences of accession into the EU? These are European Commission calculations taken with our calculation of GDP growth. Turkey’s accession to the EU will cost the EU an approximate maximum of 0.2% of EU25 GDP per year as of 2025. For me this is something affordable. It is affordable because the EU has to be seen as a peace project. It was formed in the beginning as a peace project. It has to continue to be seen as a peace project. I think most of us who are here, whether we realize it or not, are here for one main reason and that is to secure a peaceful development of our societies and regions. One thing we have to say is that the visions we present here are only of use if they are understood by policy makers and subsequently by the electorate. I think this is a very important point, otherwise these visions will remain visions. Thank you very much for listening to me.

Question - Ayşegül: Boğaziçi Üniversitesi, Ekonomi son sınıf öğrencisiyim. Benim sorum Linda Hanım’a olacak. Girişimciliğe baktığımızda, büyük ülkelerin ortak bir payda olduğunu görüyoruz. Çin hükümetinin girişimciliğini desteklemesini ve bu konudaki görüşlerini bildirmesini istiyorum.

Two points to make, one was your literature point although you didn’t mention China specifically, there are very clear regional disparities in China like in other emerging markets that’s clear. 8 years ago I was in Shanghai and I went out about 1.5 hours away from Shanghai. I walked into a shop and in that shop, a bookshop, which everybody could go to, I saw Shakespeare in Chinese, I saw an English-Chinese dictionary and this was available for people to purchase. The second point is, in that town a relatively small town of about 700,000 people I walked down the street again and turned into a small door, walked into a hall about the size of this hall with huge electronic screens at one end with lines and numbers on it, I was wondering what it was and somebody told me that this is a branch of the Shanghai stock exchange and I found three of these in Shanghai - this was 8 years ago. Some of the Chinese in Shanghai are perhaps more capitalist than us actually. These are two anecdotes but these are things, which are going on in China, which one doesn’t see and which are positive.