TURKEY BRACES FOR THE SOCIAL CONSEQUENCES OF AN ECONOMIC SLOWDOWN

In a recent interview in the Financial Times United Nations Development Program (UNDP) Administrator Kemal Dervis warned that Turkey was one of the countries likely to suffer the most from what he called an “inflation tsunami” (Financial Times, May 7). His remarks have heightened concerns about the social consequences of the slowdown in the Turkish economy.

Dervis served as Turkish Economics Minister in 2001 and 2002 and was one of the main architects of the IMF-backed Economic Stabilization Package. This program enabled Turkey to recover from the devastating financial meltdown in 2001, which had produced a 5.7 percent drop in the annual Gross Domestic Product (GDP). As a result, when the ruling Justice and Development Party (AKP) first took office in November 2002, it inherited an economy that was already rebounding from the previous year’s recession. The party undoubtedly deserves credit for the fiscal discipline and political stability that have helped Turkey achieve an average annual GDP growth of 6.8 percent from 2002 to 2007. But the AKP’s apparent confidence that its continued presence in power was in itself a sufficient guarantee of sustained future growth meant that it refused to recognize the signs of an impending economic slowdown well before the international credit crunch triggered by the collapse of the US sub-prime market.

In 2007 Turkish GDP grew by 4.5 percent, the lowest rate since the AKP came to power. Since the beginning of this year, domestic and international confidence in the Turkish economy has been badly shaken by the AKP’s heavy-handed attempts to lift the headscarf ban in universities (see EDM, February 11) and the subsequent filing of an application with the Constitutional Court for the party’s closure (see EDM, April 1). In the first four months of 2008, producer prices rose by 11 percent, more than twice the AKP’s target of 5 percent for the entire year. In April alone, producer prices rose by 4.5 percent, taking the 12-month inflation rate to 14.6 percent (Turkish Statistical Institute, www.turkstat.gov.tr).

Even during the boom years of 2002 to 2006, Turkey was already failing to create enough jobs to keep pace with its growing population. In January, the latest date for which figures are available, the official unemployment rate stood at 11.3 percent, marginally up from 11 percent in January 2007. However, official Turkish unemployment figures only count those who are actively looking for work, not those who would work if employment were available. A more significant statistic is the one for labor force participation, that is, the proportion of the potential labor force that is actively employed. In January 2008 the figure stood at 45.7 percent, down from 46.8 percent in January 2007. In 2003 it was over 49 percent. Most of the change appears to be attributable to women no longer even bothering to look for work.

Perhaps more alarming has been Turkey’s failure to curb growing unemployment among the young. Around 18 percent of Turkey’s estimated total population of 70 million is between 15 and 24 years of age. The official statistics suggest that in January unemployment in this age group stood at 21.0 percent, up from 20.7 percent in January 2007. A 2008 UNDP report, entitled “Youth in Turkey,” however, put the figure even higher, suggesting that nearly 40 percent of Turkey’s 12 million 15 to 24 year-olds are neither employed nor in an educational institution (www.undp.org.tr).

“From 2002 to 2006, when the population grew at an average annual rate of 7.5 percent, the unemployment rate stubbornly remained unchanged at around 10 percent. Population growth keeps outpacing employment growth,” noted the report (www.undp.org.tr).

The report estimated that around 1 million 18 to 24 year-olds were currently actively seeking work, while another 300,000 had simply given up hope and stopped looking. It noted that an estimated 2.2 million women aged 18 to 24 were neither in an educational institution nor at work. Women were also the most likely to fail to complete even the compulsory minimum education.

“Despite the eight-year compulsory educational system, only 89 percent of young people complete their primary education,” said the report. “Only 56 percent of young people continue to high school after primary school, and only 18 percent make it to a university right after graduating from high school” (www.undp.org.tr).

The report warned that Turkey was running out of time to utilize what it described as a “demographic window of opportunity.”

“If Turkey can give the right opportunities to its youth today [and] invest in their education in order to prepare them for higher value jobs in the future, the demographic window of opportunity can be utilized effectively,” said the report. “But if this opportunity is mismanaged, unemployment, poverty, and social unrest may lie ahead” (www.undp.org.tr).

In an interview in the daily Radikal, Aygen Aytac, who was one of the main writers of the UNDP report, noted that the Turkish authorities did not appear to understand that time was running out.

“Turkey is one of the few countries in the world that does not have a policy on youth,” said Aytac. “In the last 10 years, 155 countries have developed youth policies and 168 countries have established youth coordination mechanisms. In Turkey there are 13 ministries and 123 official institutions with a direct impact on the lives of young people. Turkey must develop a policy on youth as soon as possible” (Radikal, May 8).