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Turkey's 2002 Export Report

 The most noticeable monthly development in the export reports issued by TİM is the instability of exchange rates. The negative effects of this instability on exports have been balanced to a degree by the change in the Euro/Dollar parity in favor of the Euro. As debates around the link between exchange rates and exports continue into 2002, TİM has persistently underlined that obstacles to export are not only the exchange rate regime, but factors of cost like energy, employment, credit interests and taxes as well as quotas and non-tariff impediments.

The Turkish lira, made more competitive by the economic program in 2001, charted a course with ups and downs throughout the year and has descended from the 1,650,000 TL limit to the 1,300,000 TL limit in such a short period of time as three months. The loss in value of the American dollar amounted to 19.2%. Meanwhile, the state fixed main input prices at a higher exchange rate so while input costs of exporters soared, they weren't able to pass this on selling prices as they had signed their sales agreements beforehand. Under this circumstance, exporters who became dependent on foreign markets during the stagnation of the domestic market have had to sell their goods at a loss.

If we go back to the beginning of 2002, it can clearly be seen that the export performance in January and February was dispiriting. The suspension of subsidies to various sectors in the framework of the IMF program hit the agricultural sector hardest. Exports in January of 2002 only inched up 4.6% over January 2001, to $2,454,371,000.

Exports in February 2002 as though reinforcing the discouraging performance of the Turkish economy at the year's start, fell by 6.9% compared to February 2001, down to $2,334,509,000. Earlier, concerns had crept in about the probability of such a decline, which occurred on a monthly basis in all sectors except mining. It was feared to negatively influence the yearly export momentum as well. The 38% valuation of the Turkish lira against the Dollar and the Euro in the four months between September and January had hiked up the TL to a level even more valuable than the parity prior to the devaluation. In its February export report, TİM had underscored the lack of coordination in the economy and had made warnings so that the contradictions between tax policies towards production inputs and macroeconomic goals would be eradicated immediately. The following sentences in the report served as a response to critics of exporters:

"The problem of export increase should not be overshadowed by narrow debates of exchange rate; the real problems of exporters such as employment, financing and energy should take their place on Turkey's agenda. It must not be overlooked that exports and growth are the lifelines of the economy and this is the issue of all of Turkey."

The narrowing of the domestic market due to the program and the crisis when most producers clung onto exports, hinted better prospects for the month of March as the export numbers gave the first ray of hope. The contraction in the domestic market in the electric-electronics, machinery, cement & soil products, ready-made wear & apparel sectors, drove these sectors to open up to foreign markets whereby they displayed the highest export figures. Therefore, in March of 2002 our exports increased 18.3% over the same time period of the previous year, to $2,861,064,000. In the first three months of 2002, the total growth in exports was 5%; exports of industrial products rose by 6.4%; exports of agricultural products, as if confirming the warnings of TİM in January, fell by 4%.

In March certain groups made statements proclaiming, "The crisis is over"; TİM rebutted arguments of this claim in its March export report with the following points:

• In 2001, Turkey's GNP shrank to 9.4% of the year before and the biggest contraction ever since World War II is taking place.

• In 2001 industrial production declined by 8.6%; the Monthly Industrial Production Index is 3.1% less than the preceding month. It wouldn't be right to speak of an end to the crisis before a transition to real growth.

• In January-February 2002, 6440 companies were founded. This number was 7938 same time last year, translating to a 18.9% decline. Is it logical to say that the crisis is over in a country where fewer companies are being founded?

• With this economic contraction, GNP per capita was reduced to $2160, 10 times below the European Union average to which we want to become member and which has an average national income of $22,500 per head.

• On the budgetary front, the consolidated budget deficit ballooned a staggering 11.093% in January-February. The deficit ran up to TL10.6 quadrillion in the first two months.

• There is no development to incite optimism on the employment front either. In 2001, the total number of unemployed people was 1,902,000, a rate of 8.5%. More gravely, in 2001, the rate of unemployment among educated youth, the guarantee of our future, reached 25.8% all over Turkey."

• At the close of 2002, positive developments took place in just a few of these parameters. There are still many more obstacles that we have to overcome. The statistics of unemployment and companies that have closed down show that the nine-month growth figures bear no social reflections. The ending of 2001 with a historical contraction signaled that 2002 would turn out to be better in the mathematical sense. The three-month Production Index Graph of DİE (State Statistical Institute) bespeaks of this. The developments in the two periods are almost mirror images of each other.

In April, the diffusion of reduction in the agricultural sector, which accounts for most of the employment in Turkey, connoted that the problems in the sector had reached stark dimensions. Against the 13.1% tumble in exports of agricultural production in the same period of 2001, TİM emphasized that to ensure social balance, the problems of the agricultural sector had to be solved urgently. In spite of this negative development, TİM announced that exports kept momentum in March, rising 8% over last March, to $2,747,214,000. It was the 11% surge in industrial products that generated this outcome.

Optimist expectations resurfaced in April with one of the oldest problems of the Turkish economy; the government's target of 35% inflation was found to be more and more realistic. TİM pointed to the fact that purchasing power diminished faster than inflation did, stressed that life was getting more expensive and put across bluntly that groups with fixed incomes like farmers, blue and white collar workers could not materially benefit from the merits of the fall in inflation. The following statements in the April export report should be borne in mind:

"Turkey is compelled to beat inflation by producing and exporting its produce. Only in this way can all groups in society benefit from the fall in inflation and our country turn from a low inflation-stagnating economy into a producing and growing (real) economy."

In May, there was a jump in the exchange rate that was based on economic grounds. This movement in exchange rates towards the point indicated by experts insistently, though important in terms of Turkey's competitive power, was not the only factor to influence exports. TİM, in its May export report highlighted that if competitive prices could be provided in inputs towards production, Turkey could become a country able to produce and sell its produce again. Other than that, TİM emphatically urged avoidance of an unrealistic exchange rate in both upper and lower limits.

In the light of these realities, May 2002 exports went up to $2,987,363,000, a 6.6% increase over the previous year. Exports of industrial products moved up by 10.5%, but exports of agricultural products took a 17.4% dive. It was seen that the slump in the agricultural sector gained continuity. As a result, the share of the agricultural sector in total exports during January-May 2002 edged down to 12%.

Another important development in May was the acceptance of the financial restructuring plan, which became known as the "Istanbul approach" by banks and its presentation to BDDK (Banking Regulation and Supervision Agency). TİM insisted that the public and private sectors had to work in coordination and join forces if this attempt to relieve companies in difficulty was to succeed. The May Export report ended with the sentence: "The real sector's rescue from financial hardships will open the way for Turkey."

In June when the first disputes about early elections erupted, the unexpected climbing of public debt interests spurred concerns about the future of the implemented stability program. The rapid rise of interests in the face of falling inflation, gave the impression that the positive development at the general level of prices was not lasting. In May, interest rates that were expected to be cut down to 40% compound, jumped above 70%, partly due to the atmosphere of ambiguity. This raised doubts about whether there was a vague rift between monetary and fiscal policies. The positive developments, numerically, in the real section of the economy were not felt on the demand side, which did not allow for tangible comments about the direction of money. The rise of exchange rates along with interests gave way to hesitations in portfolio preferences and caused a delay of consumption.

Even though the initial concern that Turkey's exports could be subjected to negative conditions was predominant, it was understood that the positive impact of the fast gain in the value of the Euro would reflect on export figures in the remaining part of the year. Exports increased by 5.1% in June over the previous year, to $2,751,403,000; exports of industrial products swung up by 9.9% while exports of agricultural products shrank 24.2% compared to the same time last year. When the first six months of 2002, are considered, the total growth in exports was 5.9%.

The largest rises by sectors were in Transport Vehicles and Sub Industry (21.1%), Wood and Forestry Products (19%), Cement and Soil Products (16.3%) and Electrics, Electronics and Machinery (13.3%) and the largest falls were registered in the agriculture sector.

In June when efforts and debates concerning the EU were most intensive, it was thought that the start of accession negotiations could influence the economy positively. In relation to this effect, provided that positive and negative comments in the fringes were cast aside, TİM reports often stated that it would also create positive impacts to go for standardization in every area with the EU countries with whom we have the most dense foreign trade relations. Nevertheless, it was also emphasized that bringing the EU debate to the agenda in a way to dismiss certain hazards is likely to exacerbate the political and economic ambiguity.

TİM's message in the June export report was: "The EU, in every way, incorporates life standards yearned and deserved by Turkish citizens for long years. That is why we have to adopt the "Copenhagen Criteria" that are universal standards not only to attain EU membership, but also for ourselves. However, some reports and studies far-flung from realism and seriousness in the way of, "We'll become rich if we enter the EU" both mislead the public and leave those, who identify with the EU and the universality of its criteria and try to convey it to the public, at a difficult position. Thus, we believe in the need to approach the EU in a more scientific and realistic way."

In July 2002, it was expected that the Early Election decision of the Parliament would dissipate the ambiguity in money markets, but it was soon realized that the same effect would not take place in terms of fixed capital investments and the expansion plans in the real sector of the economy. The blurriness of the picture to come out of the Early Elections hung over as a short-term obstacle in the way of boosting production and employment.

As scenarios about Iraq gradually began to crystallize, both domestic investments and trade with the countries of the region were put on ice. The enunciation by every group that there would be a military operation in autumn augmented apprehensions; ideas as to the ramifications of long-term instability in the country were not as lucidly expressed as today.

Despite the above-mentioned adversities and hazards, the July export figures underlined that exporters were the firmest stronghold of the Stability Program with the IMF, both in terms of growth rate and foreign currency inputs. According to our export records, exports were up by 29.3% from last July to $3.155 billion. Between January and July, the catalysts of the 9.1% yearly rise in terms of US Dollars were first industrial products and then mining. The negative course of the agricultural exports continued.

We see that behind the record-high rise of 35.9% of industrial sector exports compared to July 2001, stand the 37.3% relative and $596.218 million absolute increase in the manufacturing industry. It was understood that this upturn in exports in the manufacturing industry, a sector quite effective in creating value added, would reflect on statistics of production and capacity utilization rates.

Between January-July 2002 with the impetus of this monthly growth, exports of the manufacturing industry shot forward by 14.1% over the same period last year. The rises in ready-made wear and apparel, electric-electronics and machinery exports by July 2001-July 2002 comparison were 41.9% and 55.6% and by January-July comparison of the same year were 18% and 23.6%, which points to a productive competition between labor-intensive sectors and technology-intensive sectors.

In agriculture, due to conjectural and seasonal effects, July saw a 8.2% contraction with regard to the same month last year and the impact of this contraction to the January-July period showed itself as a 10.8% slide from the previous year. Induced by the contraction in herbal products, it was felt most palpably in grains, pulses, oily seeds and products, olive, olive oil and tobacco.

TİM consulted with the IMF committee in July relaying vehement messages about opening the way for foreign currency earning elements.

During August when the country's agenda locked into politics, exports sustained their growth in spite of all the structural problems. At approximately $3 billion, there was an upward move by 15.2% over August 2001. In those days, TİM had argued that our exports had to go significantly above $34 billion to take our country out of the debt cycle and the total of $36 billion annual exports proved that this was not just a dream.

In an analysis by sectors the upward trend in exports of industrial products was maintained in June, 15.5% up from the same time last year. Ready-made wear and apparel, that have a 27% share in total exports, were up 18.7% and the Electric, Electronics and Machinery sector went up 25.6%. The same trend was present in Wood and Forestry Products and exports in the first eight months registering 36.2% more than the previous year. The downturn in export figures of herbal products continued.

After the decision for Early Elections was made, TİM centered on the concept of "measurable politics", launching a program for the documentation of what our political parties and leaders say about production, export and payment of debts and inviting the leaders of our political parties and their specialized staff to impart their projects on export and production.

The series of meetings publicized as "Exporters ask, political leaders answer" began in September. In these meetings the goals and projects of political leaders concerning exports and the economy were heard one by one. In the meantime, our exports, in spite of all the negative developments, increased by 27.7% reaching a record level of $3.3 billion. In the January-September period thanks to the high performance since the beginning of the year, the rise was 12% up from the previous year, at a level of $25.6 billion. This surge in our exports is an achievement of our producers and exporters who against the dried up domestic market, hung on to foreign sales with all their might and worked heart and soul in order not to lose the markets they had seized until now, increasing exports to surrounding countries. It is an achievement gained despite all political and economic drawbacks. This achievement was won at the expense of towering financing costs, sales profitability and net value added expressed in negative values, the producers' maintenance of production by selling the assets in their hands and a real fall in the wages of private sector workers. On a monthly basis, industry and mining improved by 34.7% and 32.4% respectively; there was a less than 1% drop in agriculture. In January-September 2002, industry and mining recorded rises of 17.6% and 15.5%, but the more than 15% plunge in agricultural exports manifested the necessity of developing some additional precautions and policies on the agriculture front.

In its September export report, TİM put forward the following sentence: "It is our greatest wish for the Turkish private sector, amidst all political and economic adversities to lock in to this goal and the political and bureaucratic circles' adoption of an awareness to work in this direction as soon as possible."

The massive consensus that the inflation goal for the year's end would come through was bolstered in October. While all economic data materialized positively, with the mounting of the public debt burden to TL140 quadrillion, some adversities became more visible. The outlining of the TL203 quadrillion budget provoked controversies. A 45% rise in expenditure in the new budget (of 2003) as opposed to a projection of only 35% rise in revenues presented sufficient proof that borrowing would go on rapidly in the new year, too. Of the total tax revenues in the budget, only 19.87% would be met by income tax and 9.39% by corporate tax, implying that the Ministry of Finance would rely on indirect taxes during 2003 as well. This situation would set back expectations about falling production costs in the New Year. In view of such developments, TİM maintained that it would resume its support of a reorganization of taxes in energy, fuel, employment and intermediary goods.

October was completed with another record figure of $3.652 billion, strengthening the belief that the end-of-year goals would be surpassed. A $36 billion total annual export became more of an expectation rather than a hope, albeit all problems. As in previous months, the most important acceleration was in the industry and mining items. Both sectors' exports rose by 35.6% and 44.56%; these rates were 17.8% and 18.5% for the January-October period. In industrial exports, automotive and sub industry, ready-made wear and apparel, ferrous and non-ferrous metals were the thriving sectors. The total of these export items were around 50% of monthly exports that evinces how important the growth was.

Another pleasant development in October was that concerns to do with agricultural exports were replaced by a nebulous recovery. Still, agriculture exports were 8.4% below 2001 in the January-October period.

In October, TİM carried on its work to turn political promises into pledges prior to early elections through its series of meetings "exporters ask, leaders answer". It was declared in the October export report that after the elections, leaders' approaches to the problems of export and their suggestions of solutions would be followed up by TİM and that in this way "measurable politics" would be used in real life.

Starting with the announcement of early elections, money and capital markets went through remarkable changes in November. Exports, akin to previous months, boomed by 15.2%, to $3.7 billion. On a monthly basis, the industrial sector led by 32.1%, mining and agriculture contributed by 11.3% and 14.4% respectively. The key items that led the rise in industry were transport vehicles and sub industry that broke a record with a 62.4% rise, electric-electronics with 44.3% and ready-made wear-apparel with 30.8%. By January-November the improvement of exports in Industry, Mining and Agriculture were 19.2% rise, 17.3% rise and 6% contraction, respectively. Electric-electronics (33.4%), transport vehicles and sub industry (24%) and ready-made/apparel (22.2%) were the locomotives of the positive trajectory.

In November, foreign currency inputs dwindled by the momentum of exports and the reentry of a certain amount of "under-the-pillow" money into the system prompted the return to the TL, leading foreign currency exchange rates to fall back rapidly. The inability of interest rates to come down by the same momentum foiled optimism. Exporters were seized by indecision against sudden changes in the exchange rate.

"We, as the exporters, are the main weapon for fighting inflation. In Turkey, a battle with inflation may be continued in direct proportion with the increase of exports. The growth we desire is the growth of currency earning activities. What we need is not a high exchange rate, but a realistic and a competitive one. We wish the rise in exports to continue and the days to come when the middle and long term relationship between this rise and price stability will be comprehended correctly."

December 2002 was the year when the Iraq-US clash became patent and markets for this reason headed south. The positive reflections of Turkey's obtaining a date from the EU, though conditional, were paled by this new development. The November's dip in exchange rates discontinued as a result of incidents in domestic and foreign politics. The intervention by the Central Bank upon the swing of exchange rates was partially effective. The Central Bank also showed the same resolve while exchange rates were plummeting. Nevertheless, the rapid value rise in the Euro was the most influential development on exports for the year.

There has not yet been a positive development in input costs. The negative pressure of the Iraq issue on oil prices is likely to deteriorate the severity of problems in 2003. In December when plans to compensate Turkey's losses in a possible operation were intensively discussed with American officials, a major issue of controversy was whether our country would contribute to the operation directly or indirectly.

It has been announced numerously by TİM from the middle of the year on, that total annual exports would surpass $34 billion. The yearly total reached $36.205 billion with the new record in December. Exports in the twelfth month were 32% above exports in December of last year, at $32.74 billion.

TİM had many times affirmed in its reports that the perpetuity of this triumph in export performance despite all adversities was dependent on some conditions. The Turkish Exporters Assembly will carry on its work in the New Year tirelessly and unceasingly so that Turkish exports can attain the place it deserves.

Turkish Time - January/Febuary 2003 edition.

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