How is the Turkish economy in 2016
Dr. Ümit Akcay holds a PhD in development economics from Istanbul's Marmara University. Since 2018 he has been teaching as a guest lecturer at the Berlin School of Economics and Law. His research focus is the economy of Turkey. He is currently working on a research project comparing the political economy of financialization in Poland, Brazil and Turkey. Information on his publications can be found at: https://hwr-berlin.academia.edu/UmitAkcay
The main dynamics of the rise and failure of Turkish economic policy under the AKP government can be divided into three temporal phases: first, the so-called "golden years" between 2002 and 2007, second, the effects of the global financial crisis on the Turkish economy, and third, the current one economic recession as the provisional final episode of the structural crisis in the period after 2013.
The "golden years" of the AKPIn the opinion of many scholars, the AKP was economically successful in its first term in government between 2002 and 2007, mainly because of its reform agenda. The basis of this reform agenda was, on the economic side, an agreement with the International Monetary Fund (IMF) and, on the political side, the beginning accession process to the European Union.
The agreement with the IMF provided the framework for the economic reform program "Transition to Strong Economy"(TSE) . The aim was to find a way out of the crisis in which Turkey found itself in 2001. The former Vice-President of the World Bank, Kemal Derviş, was largely responsible for the TSE program and its reforms Prime Minister Bülent Ecevit returned to Turkey and was appointed Minister of Economy.
The accession process to the European Union formed the political basis of the ACP reform agenda. As part of this process, the government gradually restricted the political influence of the military - one of the demands of the European Union. The AKP government was also supported by liberal and left-wing liberal forces in Turkish politics, who saw the AKP as a new democratizing force.
The AKP's economic reform agenda ultimately consisted of three elements:
- Combating inflation and maintaining strict financial discipline
- Making the labor market more flexible
- Privatization of state companies
Insecure working conditions and stagnating real wages were therefore two decisive consequences of the labor market reforms.  Eventually the AKP achieved unprecedented success in privatization.  The privatizations aimed not only at reducing the national debt through the sale of state-owned companies, but also at reducing the power of organized labor structures, since state-owned companies were a stronghold of trade union organization. Together, these reforms led to a major liberalization of the labor market in Turkey. 
As a result of this reform policy and an extremely favorable situation on the international financial market, capital inflows into Turkey - through direct investments in companies and through the purchase of Turkish government bonds - rose sharply between 2002 and 2007 and reached a level of 50 billion US dollars in 2007 ( Illustration 1). The capital inflows not only led to a high rate of growth and falling inflation, but also helped the AKP to form a stronger alliance against the old Kemalist establishment domestically. Between 2002 and 2007, the gross domestic product (GDP) increased by 7.4 percent (Figure 2).
The global financial crisis and TurkeyThe global financial crisis in 2008 had different effects on Turkey. One of the immediate effects of the crisis on Turkey was the collapse of international trade and capital movements. This led to an average decline in GDP growth of 1.9 percent in 2008 and 2009. In a coordinated response, the major international central banks (the US Federal Reserve, the European Central Bank, the Bank of England and the Bank of Japan) lowered the Interest rates massive, which led to an enormous international flow of capital into the so-called emerging markets ("emerging markets" include China, India and Turkey). In contrast to the crisis years, Turkish economic growth averaged 8.2 percent between 2010 and 2013 (Figure 2). However, with the announcement by the US Federal Reserve that it would normalize its currency policy, these capital flows into the emerging markets subsided again. That paved the way into the crisis of the debt-driven growth model of the AKP government.
From 2008, Turkish politics liberalized the taking out of loans in foreign currencies for companies, especially for manufacturing companies . The deregulation should allow the Turkish economy to benefit from the favorable international financial conditions. The fatal consequence: a sharp rise in the level of debt in foreign currencies. Since then, Turkey's debt structure has changed dramatically (Figure 3). The debt level of Turkish companies doubled after the crisis in 2009, while national debt remained at a low level. While household debt in relation to GDP was almost zero until the 2001 crisis, it rose tenfold from 1.8 percent of GDP in 2002 to 19.6 percent in 2013. (Figure 3)
The crisis of the debt-driven growth modelThe 2001 IMF program also helped the AKP's debt-driven growth model to rise. The main aim of the stabilization program was to keep inflation under control. A restrictive monetary policy is normally the basic political stance of conservative central banks, since their aim is to control inflation. However, special international economic conditions temporarily suspended this necessity. Between 2010 and 2013, Turkey benefited to a large extent from such favorable international credit terms, as it received even greater capital inflows in this period than in the period between 2002 and 2007 (Figure 1).
The AKP responded to these dramatic developments with a renewed credit expansion under the leadership of the state banks (Ziraat Bankası, Halkbank and Vakıfbank) to prevent an economic recession, especially in view of the upcoming local elections on March 31, 2019 (Figure 6 ). However, the renewed credit expansion exacerbates the current crisis  because a renewed credit cycle not only "increases Turkey's current account deficit and foreign capital inflow immensely"  but also increases corporate debt.
Final remarksThe AKP's debt-driven growth model ensured positive economic development in the first few years of the new millennium, as it benefited from the favorable credit terms on international markets. The model continued to work due to the huge capital inflows between 2010 and 2013 after a two-year recession in 2008 and 2009. The turning point came in 2013, not only for the AKP's economic model, but also for Turkish democracy, as it has since suffered a setback in every aspect of democratic life. Another important milestone in the current democratic decline in Turkey is the undermining of the unionized workers' organizations through reforms for a flexible labor market in the so-called "golden years" of the AKP Political conflict in Turkey changed With the organized workforce almost disappearing, the political struggle among the ruling elites intensified, as did the struggle for power and influence in the state institutions of Turkey.
This text was written in English and translated into German.
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