TURKEY

Republic of Turkey

Türkiye Cumhuriyeti

COUNTRY OVERVIEW

LOCATION AND SIZE.

Turkey is a peninsula that, uniquely, straddles 2 continents. Located in southeastern Europe and southwestern Asia, 97 percent of its area occupies Anatolia, the peninsula of land that lies between the Black Sea on the northern coast of the country, and the Mediterranean to the south, where the continents of Asia and Europe meet. The remaining 3 percent of the country is in Thrace, a region in the southeastern Balkan peninsula, north of the Aegean Sea. Turkey has an area of 780,580 square kilometers (301,382 square miles) with a total coastline of 8,430 kilometers (5,238 miles), and shares its land borders with Armenia, Azerbaijan, Bulgaria, Georgia, Greece, Iran, Iraq, and Syria. The country is strategically situated since it controls the Turkish Straits, comprised of the Bosphorus, the Sea of Marmara, and the Dardanelles, which connect the Black Sea to the Aegean on the west coast. Comparatively, Turkey is slightly larger than the state of Texas. The capital city, Ankara, is located in the northwest center of Anatolia.

POPULATION.

In July of 2000, Turkey's current population was estimated at 65,666,677. Between 1990 and 2000, the average annual growth rate of the population was 1.27 percent, with a total fertility rate of 2.16 children born per woman. The World Bank expects Turkey's population to reach 91 million by 2025. Since 1986, the state has actively promoted population control but, ironically, for about 40 years following the establishment of the republic in 1923 the government actually encouraged population growth.

The Turkish population is very young with only 6 percent aged 65 and over, and 65 percent between the ages of 15 and 65. In 1995, approximately 67 percent of the population lived in urban areas. As of 1999, urban dwellers increased to 75.3 percent of the total population. Approximately 20 percent of them live in Istanbul, making it the most heavily populated city in the country.

Turks constitute almost 80 percent of population and Kurds 20 percent. The rest of the population is made up of small minorities of Arabs, people from the Caucasus, Greeks, Armenians, and Jews. The ethnic Turks are a diverse people who differ from one another in dialect, customs, and outlook. The 3 major groups are the Anatolian Turks, who have lived in the Central Anatolian Plateau for centuries; the Rumelian Turks, who were originally mainly immigrants from the Ottoman territories in the Balkans; and the Central Asian Turks, descended from Turkic-speaking immigrants from the Caucasus region, southern Russia, and Central Asia. Turkey is the only country with a Muslim majority population (99.8 percent) that operates under a secular constitution and a democratic government.

OVERVIEW OF ECONOMY

Modern Turkey is a free market economy oriented to Western markets. While the private sector continues to be the country's powerful engine of rapid economic growth, the state has a significant involvement in essential sectors such as communication, transport, and banking. Modern industry and commerce play the majority role in the economy, although traditional village agriculture and crafts are still nurtured.

By the end of World War I, the long, drawn-out collapse of the Ottoman Empire was complete. Having lost the war, Turkey was not left with much in the way of an economy. The few factories that remained were in foreign hands, agricultural output had dropped significantly, and, with the loss of the Ottoman territories, many traditional markets disappeared. The country's technology was out-dated and there was a shortage of skilled labor. The several years of struggle for independence following World War I offered little opportunity for recovery.

With the establishment of the republic in 1923, the government was faced with the formidable task of rebuilding the country's economy. Initially, the focus was on returning agricultural production to pre-war levels while building a transport infrastructure , particularly railroads. Meanwhile, steady encouragement of private enterprise was evident in various government policies and measures. The economy exhibited impressive growth levels until 1930, when the Great Depression caused the collapse of external markets for Turkey's agricultural products. This prompted the state to take a more active role in the economy, adopting a policy of etatism (an economic doctrine where individual enterprise retains its fundamental role in the economy, but active government intervention is considered necessary. It applies particularly to basic industries and public services).

The economic role of the state continued until the early 1980s, when Turkey's policy makers embarked on a new course of liberalization , abandoning protection-ist policies and initiating several reforms aimed at opening up the Turkish economy to foreign trade and investment. These new policies brought an annual growth rate averaging 5 percent over the last 2 decades of the twentieth century, giving Turkey the highest growth rate of any OECD (Organisation for Economic Co-operation and Development) country. By 2001, Turkey was one of the 20 largest economies in the world.

The path to economic growth in Turkey, however, has not been smooth. Since the 1950s, the country has suffered serious disruption to its economy every 10 years. At times, this has been due to poor political leadership, at other times, the cause has been structural inadequacies and balance of payment problems. In 1994, the country faced one of its worst recessions , bringing an end to 13 straight years of growth, but the economy bounced back strongly over the next 3 years, growing by over 8 percent. In 1998, slowdown returned as a result of the Asian and Russian financial crises; in 1999, disaster struck in the form of 2 deadly earthquakes, measuring 7.4 and 7.2 on the Richter scale, which hit northwestern Turkey right in the middle of its industrial heartland. The World Bank estimated the economic loss at approximately US$10 billion, and Turkey suffered its worst contraction since World War II. That the country has survived this miserable period is seen as a positive sign for its economic future. A larger problem is that of persistent inflation , which has been over 60 percent annually for 5 years, and remained in the double digits in 2001. The expectation of inflation has become a way of life in Turkey, bringing an inertia that has made it extremely difficult to tackle the situation.

Despite these problems, several factors have allowed Turkey to remain attractive to foreign investors. A population of 64 million with significant purchasing power represents a big and fast-growing market, with strong potential for further development. Also, Turkey lies in the middle of the rich oil-producing area of the Caspian Sea and the consumer markets in Europe, while its strategic geopolitical position at the crossroads of Europe, Asia, and the Middle East makes it a prime gateway. In addition, Turkey has close relations with the Central Asian Republics, forged by ethnic and linguistic ties, and is the leading investor in many of these countries. Last, but certainly not least, Turkey entered a customs union agreement with the European Union (EU) in 1996, thus enabling the free flow of goods to and from other European markets. All these factors make Turkey an attractive destination for trade as well as for cost-effective export industries.

Turkey's economic profile is multi-dimensional in nature. Tourism is a significant economic sector, while textiles and clothing are the most important manufacturing industries, supplying the largest percentage of goods for export. Other important industries include iron, steel, cement, chemicals, and the automotive industry. The Turkish private sector is dominated by a number of large holding companies , whose senior management is controlled by prominent families. The best known and strongest of these are the Sabanci Holding and Koc Holding companies, both of which have a significant presence in most sectors of the economy. In order to limit outside interference in company management, most large businesses only float a small portion of company shares in the public market.

POLITICS, GOVERNMENT, AND TAXATION

The Turkish political system is a secular parliamentary democracy that recognizes the separation of executive, legislative, and judicial powers. The executive branch of government includes the president, the prime minister, and the cabinet (council of ministers responsible for a variety of governmental tasks). The president is elected by parliament for a period of 7 years. He serves as the head of state, has broad powers of appointment and supervision, and is non-partisan. The prime minister is the head of the government and is responsible for appointing the cabinet. The Turkish Grand National Assembly (TBMM), or parliament, is the legislative branch of government and consists of 550 elected representatives voted for by the citizens of Turkey. The judicial system consists of a constitutional court, a series of state courts, a council of state, and a high council of judges and prosecutors.

Modern Turkey has suffered several periods of instability and authoritarian rule. When the Turkish Republic was established in 1923, Turkey was governed under 1-party rule by the Republican People's Party (CHP) established by Kemal Ataturk, who founded the modern republic. This situation lasted until 1945, when the multi-party era commenced. The first change of power took place in 1950 when the Democrat Party won the national elections. They ruled until 1960, when power was seized in a military coup intended to end internal political tensions and growing economic problems. Democracy returned in 1961 as soon as a new constitution was written, but only lasted until 1971 when, after a 3-year period of political strife and resultant domestic violence, another coup was staged, replacing the civilian government with a succession of semi-military, non-partisan governments. In 1973, general elections were held once again in an effort to re-start the democratic process but, by 1980, a military coup was again necessary to restore order and stop political violence that was claiming more than 20 victims daily.

Another new constitution was drafted in 1982. It was approved in a national referendum, and elections were held 1983. The Motherland Party, formed by Turgut Ozal, won an absolute majority, formed a government, and won a second election in 1987, making for 6 years of stable rule until, in 1989, Turgut Ozal left the Motherland Party to become Turkey's new president. Many of the structural and economic reforms that have led to liberal trade policies and reduced the government's role in the economy were initiated during this period in the 1980s. Since then, however, no single party has been able to capture a majority in elections, and the Turkish political scene has witnessed one coalition after another failing in attempts to bring stability back to government.

In the 55 years since the beginning of the multi-party era, Turkey has had 43 governments (in addition to the 14 different governments in the single-party era). In 1999, the country witnessed the fall of yet another government, the establishment of an interim government, and the election of a third. With each government averaging just over 15 months in power, it is not surprising that the country has found it difficult to develop and execute a stable, long-term economic plan. The fundamental problem lies with the fact that there are too many political parties in operation (21 parties participated in the 1999 elections), many of them following similar pro-reform, centrist policies, offering little difference of choice other than between the distinctive personalities of their various leaders.

The last elections were held in April 1999. The Democratic Left Party (DSP), led by Bulent Ecevit, received 22 percent of the votes and won the most seats in parliament. This was not enough to secure a majority and, in June 1999, DSP formed a coalition with the National Action Party (MHP) and the Motherland Party (ANAP). If this coalition proves stable, the next elections will be held in 2004. There are grounds for optimism, since the 3-party coalition has a strong parliamentary majority, and has been aggressive in pushing an ambitious reform program, well supported both domestically and externally.

Of the 21 parties that participated in the 1999 elections, 6 are prominent. Two of these are center-left parties: the Democratic Left Party (DSP), who is the majority partner in the current coalition government, and the Republican People's Party (CHP). Bulent Ecevit, the current prime minister, leads the DSP, a social democratic party with a strong free-market economic agenda. Ecevit has had decades of experience in Turkish politics (he was prime minister 3 times during the 1970s). The CHP tries to carry on the tradition of the party's early days as the first political party in Turkey, but in the last elections it failed to get the 10 percent of the vote necessary to enter parliament. Thus excluded from parliament for the first time in its history, the CHP has embarked on a process of rebuilding itself.

On the opposite side of the political spectrum are 2 center-right parties: the Motherland Party (ANAP), a junior coalition partner in the current government, and the True Path Party (DYP), which holds 85 parliamentary seats. Both are parties of the conservative mass, have similar ideologies (social and political beliefs), and, in common with the center-left, support free trade and growth led by the private sector. However, such slight policy differences as there are have favored ANAP popularity in urban areas, while the DYP has more visibility in smaller towns and villages.

The Nationalist Movement Party (MHP) was the big surprise of the 1999 elections, capturing second place with 18 percent of the national vote and a partnership in the coalition government. It has a strong nationalist agenda, and has been historically connected to right-wing organizations partly responsible for the violence preceding the military coup in 1980. Despite retaining hard-line attitudes on certain issues, the MHP seems, overall, to have softened somewhat. It has strongly supported the economic reforms and has co-operated in maintaining the stability and continuity of the coalition government.

The Virtue Party (FP) is the successor to the Welfare Party, which was in government in 1996-97 but was shut down in 1998 for undermining the principles of Ataturk and secular Turkey. FP has a religious agenda, and rejects the secular principles on which the republic is based in favor of Islam. It won 15 percent of the vote in the 1999 elections, making it the main opposition party to the 3-party coalition government.

In Turkey, the military has traditionally exerted significant pressure on ruling parties, and military intervention in government has been frequent. Since the first coup in 1960, representatives of the army, air force, and navy join the president, the prime minister, several key ministers, and the Chief of the Turkish General Staff on the National Security Council (NSC), an advisory body that oversees the president and the cabinet. At times, the NSC has had a marked effect on the political agenda. The military played a major role in the resignation of the Welfare Party government by publicly supporting a popular opposition movement comprised of businesses, labor, and community groups. The influence of the military (which has closer ties with the center-right parties) seems to have diminished in the new government, although its stance on several sensitive issues is well known to the public.

The Ecevit government restarted structural reform, trying to make up for the time lost during the political uncertainties of the 1990s. In addition to social security reforms, one of the primary tasks of the new government was the reduction of the national deficit through accelerated privatization . A series of legislative measures have been designed to allow for the process to be as smooth as possible. These privatization projects will make Turkish industry more efficient and globally competitive, and will bring increased revenue to the government. The government is also trying to tighten its fiscal discipline by cutting expenditures and tightening up on tax collection. This latter measure is important, since Turkey has a large unregistered economy that could account for an increase in the official GNP by up to 50 percent. Indeed, although Turkey's population has grown by 30 percent over the last 15 years, its taxpayer base has remained static, indicating the seriousness of the problem. If the government can succeed in reducing this un-registered economy, the tax base will broaden and bring some much-needed relief to the country's finances.

INFRASTRUCTURE, POWER, AND COMMUNICATIONS

As an emerging market Turkey has a competitive commercial infrastructure. However, the government faces a continual challenge to meet the demands of a rapidly growing economy, and gives special priority to major infrastructure projects, particularly in the transport and energy sectors.

By the end of 1999, Turkey had 118 airports, 22 of which were open to international traffic. However, a large majority of international traffic targets 3 main airports: Ataturk International Airport in Istanbul, Adnan Menderes Airport in Izmir, and Esenboga Airport in the capital, Ankara. The new international passenger terminal in Istanbul, which opened in January 2000, is one of the largest in Europe. Several more new airports are under construction, including one on the Asian side of Istanbul. Over 300 foreign airlines serve Turkey, in addition to Turkish Airlines (THY). THY, with its fleet of 73 passenger planes, operates to both domestic and international destinations. There are 15 additional public and private domestic airlines operating on a smaller scale.

Shipping plays an important role in the Turkish economy. This is no surprise, since over 70 percent of Turkey's boundaries consist of 4 seas: the Black Sea in the north, the Marmara in the northwest, the Aegean in the west, and the Mediterranean in the south-southwest. The country's 8,430-kilometer coastline is covered with large and small ports, 21 of them international. Five ports, all state-owned, handle most of the country's sea freight: Istanbul and Kocaeli on the Sea of Marmara, Izmir on the Aegean, and Mersin and Iskenderun on the Mediterranean. Seaports on the Black Sea coast mainly handle export cargo of steel products, tea, and hazelnuts, and import cargo of coal, iron ore, raw minerals, fertilizers, and bulk construction materials. The area around the Marmara Sea is the country's industrial heartland and these ports serve a vital function in Turkey's economy, handling cargo carrying raw industrial materials, semi-finished materials, chemicals, steel, and petroleum. The Marmara Sea is also the only connection between the Black Sea and the Mediterranean through 2 straits, and is therefore one of the busiest maritime routes in the world. The Mediterranean ports also handle domestic and international cargo traffic. Iskenderun handles 75 percent of Turkey's steel exports, while a nearby port serves both the domestic and the Iraqi oil pipeline. Mersin, one of the main ports of the eastern Mediterranean, acts as an export hub for southeast Anatolia's products.

The railway system is one of the weakest modes of transportation in Turkey. Although the country has 10,933 kilometers (6,778 miles) of railways running between its western and eastern borders, only 2,133 kilometers (1,322 miles) are electrified. The railroads are state-owned and operated, but rail expansion has not been politically popular for the last several decades and has lacked funding. Most commercial and public transportation, therefore, must rely on other means while the aging rail system, badly in need of renovation, is primarily used to carry minerals and bulk commodities over long distances. The government has, however, begun engaging in plans for both the modernization of existing lines and the addition of up to 2,000 kilometers (1,240 miles) of railway.

The highway transport system carries over 95 percent of passenger transport and over 90 percent of the surface transport of goods in Turkey. The country's road network is extensive, with over 382,000 kilometers (nearly 237,000 miles) of roads. By the end of 1999, 1,726 kilometers (1,070 miles) of this network consisted of motorways, and a total of 96,000 kilometers (59,520 miles) was tarred. The government has made strenuous efforts to extend and improve its road network, especially in the building of additional motorways. The economic crisis of 1998 and the earthquakes of 1999 caused some of these projects to be postponed, but they, and others, are expected to go ahead.

Turkish telecommunications services are undergoing rapid modernization and expansion. As of 1999, Turkey

had more than 19 million telephone lines, exceeding a density of 25 percent. The target density for 2005 is 40 percent. Turk Telekom, a state-owned enterprise, provides basic telephone services in the country, utilizing a variety of communication systems including satellite, submarine cable, and fiber-optic cable. The government has announced plans to privatize up to 49 percent of the company in the near future. The country is also seeing a rapid expansion in cellular telephone services, with many licenses sold to private companies. The current cellular density is estimated at 15 percent and is expected to reach 30 percent by 2010. Cellular phones have received widespread acceptance in the large cities, where they have become a part of daily life among both business executives and teenagers. The Internet is also a well-accepted communication/information medium in Turkey, again primarily in the urban areas. At the end of 1999, Turkey had 1.7 million Internet users, 70 Internet service providers, and 8.06 Internet hosts per 10,000 people. Internet usage is seeing rapid growth, primarily due to cutting-edge Internet banking operations.

Turkey faces one of its biggest challenges in the energy sector. Rapid urbanization and strong economic growth have led to one of the fastest growing power markets in the world. It is no secret that Turkey is facing a major hurdle in trying to meet the demands of such growth. In 1999, imported energy supplied 60 percent of the country's primary energy consumption, and energy imports are expected to reach 75 percent by 2020. Turkey has an installed electric capacity of 26,500 megawatts, of which about 11,000 megawatts is hydroelectric and the balance is thermal power. This capacity not only cannot meet the 8-10 percent projected annual increase in demand, but is also insufficient for present needs. The Turkish government has been actively seeking investments and developing projects to triple energy production by 2010. The Southeastern Anatolia Project (GAP) is expected to be completed in 2005, and is the most crucial public project in Turkey. When complete, the 22 dams and 19 hydroelectric power plants that are a part of this project will produce 22 percent of Turkey's projected electricity requirements. Due to the current shortage of electric capacity, the 220-volt power system has suffered from occasional blackouts.

ECONOMIC SECTORS

Turkey's economy has been able to supply a broad range of goods and services since the early 1950s. Since then, the mix of domestic production has seen a shift from agriculture to manufacturing, and then to services. In the early 1950s, agriculture made up a little under 50 percent of gross domestic product (GDP), while the manufacturing sector's share was about 20 percent. In the 1970s, with the government's continued emphasis on industrialization, manufacturing caught up with agriculture for the first time and surpassed it. This trend continued until the 1980s. With the economic reforms of the 1980s, the economic shift accelerated as all sectors exhibited strong growth, though both manufacturing and services grew much more rapidly. By the late 1990s, the services sector began to dominate the domestic economy: in 1999, the services sector made up 56 percent of GDP, while manufacturing was at 29 percent and agriculture at 15 percent. However, all 3 remain vital to the Turkish economy.

AGRICULTURE

Historically, the agriculture sector has been Turkey's largest employer and a major contributor to the country's GDP, although its share of the economy has fallen consistently over several decades. In 1999, it accounted for 15 percent of GDP, while employing about half of the labor force . Although the sector has grown over time, the growth has been only about 1 percent faster than the country's population, and much slower than that of the industrial and services sectors. Farmers have been slow to adopt modern techniques, and much of the potential land and water resources are inefficiently managed.

Nevertheless, Turkey is one of the few countries in the world that is self-sufficient in terms of food. The country's fertile soil, access to sufficient water, a suitable climate, and hard-working farmers, all make for a successful agricultural sector. In addition, a broad range of crops can be raised because of the variety of different climates throughout the land. This has allowed Turkey to become the largest producer and exporter of agricultural products in the Near East and North African regions. In fact, according to The Economist 's world rankings, Turkey is one of the top 10 producers of fruit, wheat, and cotton in the world. More impressively, it ranks among the top 5 producers of vegetables, tea, and raw wool. As a result of this massive production base, Turkey enjoys a comparative advantage in many agricultural products, and a positive trade balance in agriculture that contributes significant relief to an overall trade deficit . The country's main export markets are the EU and the United States, to which Turkey exports dried fruit and nuts, cotton, and tobacco. Another major export market is the Middle East, which buys fresh fruit, vegetables, and meats from Turkey. By 1999, the value of agricultural exports had risen to US$2.4 billion and accounted for 9 percent of Turkey's export earnings (down from 60 percent in 1980). However, these figures could be misleading insofar as almost 50 percent of the manufactured exports also originate in the agricultural sector (primarily textiles and clothing). Therefore, the agricultural sector's direct and indirect total contribution would still account for 50 percent of total exports. Of Turkey's agricultural sector, crops account for 55 percent of the gross value, livestock represents 34 percent, and forestry and fishing make up the rest.

The vegetal (of, or relating to, plants and vegetables) production is primarily made up of cereals, pulses (edible seeds of various pod-bearing plants such as peas, beans, or lentils), industrial crops, and perishables. Of these, cereal crops occupy more than half of the cultivated land. The main species of cereal crops produced in Turkey are wheat, barley, oats, rye, maize, millet, and rice. These crops are produced in most parts of the country, with a heavier concentration in the central regions.

Of all these, wheat has a special place in the Turkish economy. Turkey is both a top 10 producer and a top 10 consumer of wheat in the world. It is the essential food element in the Turkish diet, generally eaten in the form of bread. Production increases in the late 1970s enabled the country to become a wheat exporter and, although the output slowed down in the early 1980s, renewed efforts have seen wheat production continue to expand. In 1998, the total wheat production was 21 million tons.

Turkey is also the main pulse producer in the Middle East and one of the leading producers in the world. The pulse output increased from 617,000 tons in the early 1970s to 1.1 million tons in the 1980s and 1.6 million tons in 1998. Since the mid-1990s, over 60 countries import Turkish pulses, primarily chickpeas and lentils.

The major industrial crops produced in Turkey are cotton, tobacco, and sugar beets. Cotton is crucial to the wider economy since it provides the fiber for textiles, the leading category of Turkish exports. Cotton is primarily grown on the coastal plains of the Mediterranean and Aegean seas, in the south and southwest. Cotton production in 1999 was 855,000 tons. Only 10 percent of cotton is exported in raw form, while the rest feeds the domestic textile industry. The Southeastern Anatolian Project is Turkey's largest development project. It seeks improvements in energy production, tourism, mining, gasoline, education, health, communications, industry and transport, and in active farming by means of extensive irrigation systems. When the project is completed, it is estimated that Turkey's cotton production will expand to twice the level of production in the year 2000. Another industrial crop, sugar beets, saw a dramatic increase in production in the 1980s and 1990s. In the 1970s, annual production was around 650,000 tons, meeting only domestic needs. In the 1980s, this increased to 1.5 million tons, and in 1998 the total production of sugar beets was 22 million tons.

Tobacco has been grown in Turkey for many centuries, and the tobacco industry is a major player in the Turkish economy, contributing 18 percent of total agricultural exports. Turkey ranks as the fifth largest tobacco-producing country in the world, and its number-one producer of Oriental tobacco, of which it grows over half of the world's supply. The country is also the world's fourth largest tobacco exporter. The crops are primarily concentrated on the Aegean coast and Black Sea regions, but eastern Anatolia also contributes to the output. The crop yield varies considerably from year to year due to climatic changes, but averages around 200,000 to 300,000 tons annually. On average, 30 percent of this output is exported to the United States and another 20 percent to the EU.

Perishable fruit and vegetables are also important to the Turkish economy. Out of the 140 perishables grown in the world, the country produces 80 varieties of fresh fruits and vegetables and exports 30 kinds of vegetable and 20 kinds of fruit. These include grapes, citrus fruit, melons, potatoes, onions, tomatoes, olives, and cucumbers. These exports are worth over US$1 billion annually to Turkey.

Turkey is prominent, too, in the world trade of edible nuts and dried fruits. In this category of agricultural products, hazelnuts, pistachios, sultanas, dried apricots, and dried figs are important exports. Records indicate that hazelnuts have been grown along the Black Sea coast since 300 B.C. and Turkey is a major producer, competing with Spain, Italy, and the United States in the international markets. In 1998, Turkish hazelnut production reached 580,000 tons. Turkey also leads the world in figs, producing 36 percent of the world's total production and accounting for 70-75 percent of total world exports.

Animal husbandry is also significant in the agricultural sector. Turkey has traditionally been an important supplier of live sheep, lamb, and mutton to the Middle East, especially Iran and Iraq, but the United Nations (UN) embargo on Iraq, following the Gulf War, adversely affected domestic meat exporters and led to a significant decline in exports in the 1990s. Sheep constitute 59 percent of the existing animal total in Turkey, followed by cattle (22 percent) and goats, both the common goat and the Angora breed (16 percent). Most livestock is grazed in the central and eastern Anatolian plains, as well as in the western Anatolian region. Turkey is self-sufficient in milk products, supplying around 10 million tons per year.

Turkey's basic agricultural resources are vast and offer considerable potential for expansion. However, to maximize this potential and increase efficiency, the agricultural sector needs government involvement in structural reforms and development projects. One of the several aims of the Southeastern Anatolian Project (GAP) is to strengthen and expand the agricultural resource base for one of the most underdeveloped parts of the country. Indeed, GAP is possibly one of the most crucial projects for Turkey, since the large economic disparity between urban and rural areas has created social tension, and contributed to damaging levels of migration from the countryside to the cities, primarily in the southeast. This situation poses a serious threat to future agricultural development and to the general economic health of Turkey.

INDUSTRY

The industrial sector in Turkey has been the primary focus of government policies since the early 1950s. Industrial policy until 1980 was based on an import-substitution strategy. This protectionist approach was very successful for several decades, and the sector grew at an average rate of 8.6 percent annually until the late 1970s. The first factories built in the country processed food and non-durable consumer goods , and remain among Turkey's most competitive manufactures. The next phase of development was in industries such as iron and steel, chemicals, and cement. By the end of the 1970s, capital goods and high-technology products had become the primary focus, but the rapid industrialization was taking its toll on the sector. Efficiency problems and energy shortages began to slow down growth, and prevented industry from becoming competitive in the international markets. The liberal economic policies introduced in 1980 were designed to address these issues by establishing a less protectionist, more outward-looking industrial policy. The idea was to use market signals to identify un-competitive industries, transfer their resources to those industries where Turkey enjoys a comparative advantage, and thus compete in world markets. This strategy necessitated a greater emphasis on private sector-led growth. Accordingly, policies and reforms were designed to facilitate rapid expansion of the private sector.

While much progress has been made in the industrial sector since 1980, the process is still not complete. Public sector companies continue to dominate a number of critical industries, particularly those such as energy and steel whose products are crucial to private sector companies. Still, the industrial sector has achieved an average growth rate of 6 percent since 1990, and Turkey competes successfully in several areas of the international market. The country's abundance of natural resources, its geographical proximity to export markets, and the existence of a large domestic market give Turkey competitive strength in a diversity of industrial sectors. In 1999, the industrial sector in Turkey contributed to 29 percent of GDP and employed 27 percent of the labor force. More remarkably, industry accounts for 89.4 percent of Turkey's total export earnings. The key industries in Turkey are textiles, iron and steel, chemicals, cement, food processing, motor vehicles, construction, glass and ceramics, and mining.

TEXTILES AND CLOTHING.

Industrial expansion in the 1960s and 1970s gave birth to the modern textile industry in Turkey. Currently, it is one of the most important sectors in the Turkish economy, accounting for 10 percent of GDP, 20 percent of the labor force, and 40 percent of total manufacturing output. This sector is the largest in the country and it is the largest supplier of exports as well. Today, Turkey is extremely competitive in international markets and was ranked sixth in world exports of clothing in 1998.

The fact that Turkey is a major grower of cotton is a great advantage for the textile and clothing sector. Thanks to the easy availability of the raw materials, Turkish spinning and weaving industries have developed significantly, creating integrated and diversified production in all sub-sectors of the textile industry. In terms of cotton spinning, the installed capacity in Turkey is equivalent to around 33 percent of that of the EU as a whole. The export value of cotton and cotton textile products was US$777 million in 1999 and the main destinations were the EU countries and the United States.

In addition to the cotton-based textile industry, Turkey makes a strong showing in both woolen textiles and man-made fibers. It is the third largest mohair producer and has the sixth largest synthetics capacity in the world. In 1999, the export value of wool or woolen textile products was US$107 million, while the man-made fibers industry accounted for US$1.1 billion.

The Turkish home textile industry has also been a strong competitor in world markets. Turkish towels and bathrobes, produced primarily around the western cities of Denizli and Bursa, enjoy a worldwide reputation for quality, and the home textiles sector accounted for 3.2 percent of Turkey's total exports in 1999, bringing in US$859 million.

The clothing industry has shown stable growth over the years and is today one of the most important manufacturing sectors. In 1999, the production volume of clothing equaled 223,000 tons, and its export revenues reached US$6.2 billion, giving it a 23 percent share of Turkey's total exports. The major markets for clothing exports are again the EU and the United States. The EU accounts for 71 percent of all clothing exports, and Germany leads all European countries with 38 percent of total exports. The clothing manufacturers are spread through the west and south of the country, with the majority based in Istanbul.

IRON AND STEEL.

The foundations of the iron and steel industry were laid in the late 1930s with the establishment of the first integrated steel mill (a steel mill that takes raw materials in the form of iron ore and coke to produce molten iron, which is further processed to produce finished steel products) in 1939. At present, there are 3 integrated steel mills: the recently privatized KDCI (Karabuk, Black Sea region) plant and the 2 public-sector plants, Erdemir (Eregli, Black Sea region) and Isdemir (Iskenderun, East Mediterranean region). With the 1980 reforms, private sector investments accelerated, and several private electric arc furnaces (lower capacity mini-mills that produce steel from iron-bearing scrap) were established. Today, there are 17 electric arc furnaces (EAFs), only one of which is state-owned. The total steel production capacity of these 20 plants is 19.9 million tons, of which over 70 percent comes from EAFs.

Since 1980, the Turkish iron and steel industry has been one of the fastest growing in the world. In 1999, Turkey's raw steel production rose to 14.3 million tons, with a 1.9 percent share of the total world production.

Turkey currently ranks seventeenth among the 66 steelmaking countries in the world and fifth in Europe. In 1999 steel products were exported to 149 countries, with the top 6 buyers being Italy, Israel, the United Kingdom (UK), the United States, the United Arab Emirates, and Greece. With a total export value of US$2.1 billion in 1999, the steel industry is the second most important export sector in the country, after textiles and clothing.

CHEMICALS.

Turkey has been manufacturing chemicals since the very early years of the republic. Although it has not been a high-flying sector, it has shown slow but steady improvement over time. Currently, it is one of the country's largest industries in terms of value, and is the fourth major export sector, accounting for 6.6 percent of Turkey's total exports and worth US$1.7 billion. The major chemical exports are plastic raw materials and plastic products, followed by rubber and rubber products. There are 6,000 companies manufacturing chemicals in Turkey, the most prominent being Petkim, a state-owned petrochemical company established in 1965, which supplies around 40 percent of the domestic market. Petkim's 2 major complexes are located at Kocaeli (Marmara Region) and Izmir (Aegean Region). Aside from Izmir and Kocaeli, most of the private sector companies are located in Istanbul, Ankara, and Adana. Primary chemicals produced in Turkey include boron products, caustic soda, chlorine, industrial chemicals, and sodium phosphates.

CEMENT.

In comparison with the rest of Europe, Turkey was a latecomer to the cement industry. However, with accelerated investments and a number of structural reforms such as the elimination of government price-setting practices in 1984 and privatization of the industry from 1989, Turkey has become self-sufficient in this sector. Today, there are 51 cement plants in Turkey, all of which are private companies. By 2001, the country was the eighth largest cement producer in the world with a 2.5 percent share of the world market, and the largest producer in Europe. In 1999, Turkey produced 38.1 million tons of cement. While 34.7 million tons of it went to the domestic market, the balance was exported. The chief markets for Turkish cement are the United States, Spain, Israel, Egypt, and France.

CONSTRUCTION.

A domestic construction sector did not exist in the founding days of the Turkish Republic, with almost all building done by foreign companies. The sector developed steadily over 50 years following the establishment of the Republic. The 1970s and early 1980s saw a period of international expansion for Turkey's construction sector, and Turkish firms became quite successful in the oil-producing states of the Middle East. The industry contracted with the Iran-Iraq war, but large domestic infrastructure projects enabled it to survive the difficult period. The break-up of the Soviet Union marked the beginning of a new era in the Turkish construction sector, and led to the diffusion of Turkish construction firms throughout Russia and Central Asia. Today, the construction sector makes up about 6 percent of the gross national product (GNP), and Turkey's share in international global contracting services is about 2-3 percent. (Since most construction is offered outside the country, the industry contributes only to GNP, and not to GDP.) During the 1990s, 34 percent of construction services performed were located in the Russian Federation, while Libya accounted for another 15 percent, followed by Kazakhstan, Pakistan, Turkmenistan, Uzbekistan, and Saudi Arabia.

MINING.

Geologically complex, Turkey possesses some of the richest and most diverse mineral deposits in the world numbering 4,400, excluding petroleum and coal. Today, 53 minerals are produced in the Turkish mining sector, with 85 percent of production belonging to the state-owned enterprises that predominate in the production of mineral fuels and metallic ore. The 15 percent that belongs to the private sector is concentrated in industrial minerals. Turkey is a major producer of boron, chromite, marble, barites, magnesite, pumice, feldspar, celestite, and emery. Two-thirds of boron reserves and 40 percent of marble reserves in the world are located in Turkey, and the country provides 80 percent of the world demand of emery. In 1999, mining products accounted for 1.4 percent of total exports, worth US$353 million—down from 1998, when mining exports accounted for a 1.9 percent share of total exports, worth US$531.6 million.

SERVICES

The services sector accounted for 64 percent of GDP in 1999, while employing over one-third of the total labor force. Tourism and banking are the 2 primary service industries in Turkey.

TOURISM.

With a share of nearly 26 percent of GDP, the tourism industry in Turkey is strategically important to the Turkish economy. The industry entered the 1980s with 1.5 million tourists annually and a global market share of 0.3 percent. However, the sector took off between 1983 and 1993, growing at an average annual rate of 18 percent, the highest tourism growth rate in the world for the period. In 1998, the number of foreign visitors reached 9.7 million, bringing revenues estimated at US$7.1 billion. As such, Turkey is currently in the world's top 20 tourist destinations, both in terms of visitor numbers and earnings.

Despite these statistics, Turkey remains a relatively undiscovered land for tourists. The country's long and gorgeous coastline, high mountains and lakes, and wealth of historical, religious, and archaeological sites offer opportunities for massive development of tourism. However, the growth of the sector has been plagued with problems, chief among them the fallout from the nuclear disaster at Chernobyl in the Soviet Union, Kurdish terrorist campaigns, and economic problems in neighboring regions. In addition, access to natural and historical wonders is difficult in most parts of the country, and much investment in transportation, waste management, and infrastructure is required to remedy this problem. Since the 1980s, the government has identified tourism as a high-priority industry and has been steadily developing the sector, encouraging both private and foreign investment through new laws and incentive programs.

Today tourism is considered to be one of the leading industries in the Turkish economy. It creates jobs for at least 10 million Turkish citizens and offers a capacity of 563,000 beds. Further capacity of nearly 8,500 beds is available on some 990 yachts that cruise the Aegean and Mediterranean coasts. These are operated by over 100 yacht agencies. The largest number of tourists are from Germany, the Commonwealth of Independent States (CIS, formerly the USSR), the United Kingdom, the United States, and France.

FINANCIAL SERVICES.

The Turkish financial system is based upon a universal banking system that legally enables commercial banks to operate in all financial markets. As such, banks carry out nearly all of the activities in the money and capital markets in Turkey, and the banking sector has become almost synonymous with the Turkish financial system. The only 2 areas prohibited to commercial banks are leasing and the trading of goods for commercial purposes. On the other hand, development and investment banks may not accept deposits, but can engage in the 2 activities prohibited to the commercial banks. Excluding the Central Bank of Turkey, there were 80 banks operating in Turkey by the end of 1999. Of these, 61 are commercial banks and 19 are development and investment banks. Seven of the banks are state-owned. Much like their counterparts in Germany and Japan, the major private banks have ownership linkages with large non-financial conglomerates. Most state banks are located in Ankara, while many of the private banks are centered in Istanbul.

The banking system has undergone a rapid technological transformation in the last decade. According to the U.S. Department of Commerce, in terms of trade finance, treasury operations, electronic banking, and information management, the dozen leading Turkish banks are as sophisticated as their counterparts in developed countries. Certainly, Turkish banks are among the most profitable in Europe, but this statistic could prove misleading in the long term. Given the high budget deficit and high inflation, operations have a short-term focus and profits come primarily from banking investment in short-term government securities and short-term loans with high real interest rates. Therefore, profitability has not been loan-based (contrary to their counterparts in developed countries) and banks lack a lending culture and risk-asset management systems. Therefore, as inflation responds to recent measures and begins to fall, banks will begin losing their highly profitable short-term operations, and will have to focus more on core banking operations with low margins.

The Central Bank of Turkey is responsible for the supervision of the banking sector in order to guarantee that banks meet liquidity requirements and operate responsibly. However, banking has suffered in the past from weak supervision and inconsistent accounting practices. The banking sector passed through a crisis in 1999 when 3 small banks failed. The same year, a new law was passed calling for the creation of an independent regulatory agency, toughening operating conditions, and giving weight to regulatory and sanctioning powers. It is expected that, under stricter supervision, the financial sector will grow considerably stronger.

INTERNATIONAL TRADE

Trade played a minor role in the Turkish economy before 1980, but grew rapidly after economic reforms promoted liberalization of foreign trade. These reforms were designed to remove price controls , decrease subsidies , reduce tariffs , and promote exports. In addition to rapid growth in both exports and imports, the reforms brought a change in the structure of foreign trade, and the predominant role of agricultural products came to an end with the emergence of a greater emphasis on industrial products.

In addition to being a World Trade Organization (WTO) member, Turkey has also entered a number of multilateral trade relationships to increase its presence in the world trade arena. It signed a free trade agreement with the European Free Trade Association (EFTA) in 1991. In 1992, Turkey and 10 other nations in the Black Sea region formed the Black Sea Economic Cooperation Organization. Turkey is also a member of the Organization for Economic Cooperation (covering Central Asian

countries) and the Organization of the Islamic Conference. Separately, Turkey has entered into free trade agreements with Israel, and with several Central and Eastern European countries.

On 1 January 1996 the EU and Turkey entered into a customs union, covering industrial products and processed agricultural goods, but excluding traditional agricultural products from the agreement. Turkey's adoption of the EU's Common External Tariff has resulted in lower duty rates for third-party countries, including the United States.

In 1980, Turkey's total merchandise exports yielded US$2.9 billion. The share of agricultural products was 56.7 percent, while industrial products made up only 36.3 percent. Another 6.5 percent consisted of mineral products. In 1999, Turkish exports reached US$26.6 billion, a figure actually 1.4 percent lower than in 1998. The drop was primarily due to the difficult economic conditions that prevailed in Turkey as a result of the Asian financial crisis and the 2 earthquakes. The share of agricultural products in 1999 was only 9 percent, and mineral products 1.4 percent. By contrast, the share of manufactured products, on the other hand, made up 89.4 percent of total exports in 1999.

The 1991 Gulf war between the U.S.-led coalition and Iraq, and its resultant economic embargo against Iraq, have had adverse effects on Turkish exporters. While exports to Iraq were US$986 million in 1988, this figure had fallen to US$124.1 million by 1995. As a result, Iraq's share in Turkey's exports dropped from 8.4 percent (which would have been enough to rank Iraq as the third largest export market) to 0.56 percent in 1995. The 1992-95 war in Bosnia also took a toll on Turkish exports. Since most of Turkey's exports are to the European markets, the main method of transportation is surface freight. The Bosnian war brought a significant increase in freight costs, as well as causing numerous administrative difficulties. The 1997 Asian financial crisis also had a large impact on Turkey's exports, since the Asian countries are important competitors for Turkish products in overseas markets. The devaluation in Asian countries lowered their export prices and gave them a clear advantage over Turkey.

Edible fruits constitute a majority of Turkey's agricultural exports, and this trend continued in 1999. Among industrial products, textiles and ready-to-wear industries remained the major contributor. Other important industrial export sectors were iron and steel, electrical machinery, and motor vehicles and equipment. While Turkey's export markets are highly diversified, OECD countries make up a majority of the trade and took 67.8 percent of exports for 1999. Germany is the largest single export market for Turkey. In 2000, Germany took up 18.7 percent of Turkey's exports. The United States is the second largest export market, with a share of 11.4 percent, and the United Kingdom the third largest, with 7.4 percent. Italy and France take up the remaining 12.3 percent.

Turkish imports exhibit similar patterns of growth to their exports. In 1980, total imports amounted to US$7.9 billion. The figure grew to US$45.9 billion by 1998 and, by 1999, with economic difficulties affecting domestic demand, imports decreased by 11.4 percent to US$40.7 billion. In 2000, imports totaled US$55.7 billion. In 1999, 28.3 percent of Turkey's imports were made up of machinery, while chemicals made up 15.2 percent, semi-finished goods made up 14.5 percent, fuels made up 11 percent, and transport equipment made up another 9.5 percent.

Looking at the suppliers of the Turkish market, the patterns are very similar to the Turkish exports. OECD countries have taken the largest share of imports, a fact unchanged by 1999 when OECD countries constituted 69.6 percent of total supplies. Imports from the EU countries have the largest share within the OECD group, and 52.6 percent of total imports in 1999. Germany is the first import source for Turkey with a share of 14.5 percent. Italy ranks second with 7.8 percent, and France is third with 7.7 percent. The United States was the fourth most important source of Turkish imports, with a share of 7.6 percent.

MONEY

Inflation remains Turkey's principal economic problem. During the 1970s, inflation averaged about 20 percent, rising to 40 percent during 1981-87, 65 percent during 1989-93 and 85 percent during 1994-95. In late 1997, inflation reached 100 percent before the government launched another attempt at deflating the economy in mid-1998.

The extensive role of the government in the Turkish economy, coupled with weak political leadership, is the primary reason behind the country's chronic inflation. While the program of structural change and liberalization in the 1980s proved successful in promoting

economic growth, the government remained hesitant in relinquishing the economic power it held through the strong public sector. However, inefficiencies in the public sector—primarily the expenditure on state economic enterprises—resulted in large, ever-increasing budget deficits. The situation was made worse by political uncertainty as the lack of a stable majority government led to frequent elections. Prior to each election, governments have tended to boost spending in an effort to gain short-term popularity, a ploy that results in even larger national debt . Such serious deficits naturally lead to very high rates of inflation.

In 1994, high inflation, coupled with government attempts to manipulate interest rates and an overvalued currency, brought financial crisis and economic recession. Things picked up in 1995, and financial expansion continued until 1998, when the economic difficulties of Russia impacted Turkey. This led to an 18-month program of deflationary measures, which was followed up by an IMF-backed 3-year program initiated in December 1999. This aggressive program rested on 3 pillars: an up-front fiscal adjustment to decrease the public deficit in the short-term, structural reforms to ensure long-term stability and a balanced fiscal budget, and a firm exchange rate commitment to control external factors. Based on the first 6 months' performance, it seems that the budget deficits have largely been brought under control. Several steps have been taken, and the rate of inflation has been visibly declining. However, more structural reforms need to be completed if this long-term problem is to find a permanent solution.

The Turkish lira (TL) has been a fully convertible currency since 1990. With the major economic reforms of the early 1980s, the financial policies were also revamped. For the first 5 years following these reforms, the Central Bank determined the foreign exchange rates on a daily basis, targeting a 5-10 percent per year real depreciation of the Turkish lira as an incentive to exports. After the first 5 years, the foreign exchange rates were completely freed. In 1994, the financial crisis led to a major depreciation of the lira against the U.S. dollar. From 1994 until the end of 1999, the Central Bank allowed the lira to depreciate against a trade-weighted dollar/Euro basket. In 1995, 1 U.S. dollar was worth 45,845 Turkish liras. In January 2000, the same U.S. dollar was worth 545,584 liras. Since the end of 1999, with the initiation of the 3-year deflationary program, the TL is allowed to depreciate based on a targeted inflation rate . By 2003, it is expected that the currency will be allowed to float freely, assuming that the deflationary goals are met. However, the uncertainty caused by the high inflation rate has led to the "dollarization" of the economy, where most business transactions and major consumer transactions are usually denominated in U.S. dollars or German marks. This limits the Central Bank's ability to maintain price stability and control inflation.

The Istanbul Stock Exchange (ISE) is the only securities exchange in Turkey. It allow the trading of a wide variety of instruments including stocks, depository receipts, government bonds, treasury bills , and real estate certificates. The exchange only began its operations in 1986, but it grew quickly to become one of the top emerging market exchanges of the world. In 1993, the ISE was the best performing stock market in the world, and foreign investment accounted for 25 percent of daily trading volume. By mid-1999 there were 268 companies listed on the exchange. In comparison, the New York Stock Exchange has 3,025 companies listed. The main indicator of the market is the ISE National-100 Index, comprising 100 companies with high market capitalization that are also representative of the major economic sectors.

POVERTY AND WEALTH

Using per capita income statistics, Turkey is ranked internationally in the low to medium income group. When compared to countries that were once at the same level but have gone on to make dramatic improvements in their income distribution, it is easy to see that Turkish efforts have been largely unsuccessful. In fact, the renewed and accelerated effort toward economic development and industrialization that began in the early 1980s has had the effect of sharpening the extreme income divide in Turkey. Between 1987 and 1994 the share of the national income earned by the bottom 20 percent of the population dropped by 7.25 percent, and in 1994 the richest 20 percent of the population controlled 47.7 percent of the wealth, while the poorest 20 percent controlled only 5.8 percent.

In addition to their primary residence, a wealthy family in Turkey typically owns several homes around the country. These usually include a second establishment for renting out, and one or more summer homes, mostly in the coastal regions of the Mediterranean or Aegean. Family ties are quite strong in Turkey; therefore most families

invest in real estate and rent those homes out until their children grow up and move into them. The children of such families thus have the advantage of starting out in life as well-educated homeowners.

A poor family in Turkey might own a home. This could be a farming shelter in a rural area or a makeshift home on the outskirts of urban areas. Some poor families rent low-level apartments, or move into their parents' homes. Where numerous people share one dwelling, unsafe conditions can result from the overcrowding. The children of these families get some education through the public school system, and might occasionally even make it to college, but in rural areas where the nearest school is miles away, the family might choose not to send their children to school. As in the rest of the world, for those in poverty, life in general is hard.

The fostering of industrialization by Turkish governments has had a negative effect on the farming communities. Even though the agricultural sector has, historically, been Turkey's largest employer, it has declined in importance relative to the rapidly developing industrial sector. As a result, the disparity in income between the rural and urban parts of the country has also widened, and has been the cause of significant migration from rural to urban areas. Primarily due to economic instability, emigration to other countries has also been a factor since the 1970s.

High inflation and the constantly decreasing purchasing power of the Turkish lira create additional problems. Typically, wages and salaries have failed to keep pace with the increasing prices of consumer goods and services. The average consumer price index inflation in 1999 was 65 percent, reflecting a monthly increase in the prices of goods and services of approximately 5 percent. Even when earnings are adjusted for inflation, the adjustments are generally made at the end of the year, forcing consumers to absorb the mid-year price increases until the year-end.

The structure of social classes in Turkey is similar in all large cities where the population exceeds 100,000 and evolved with urbanization and industrialization. The urban upper class is mainly made up of government officials, wealthy business people, and professionals, and is primarily determined by political power and/or education. The urban upper class is smaller than the urban middle class and less diverse. Education, particularly a college degree, is the passport to joining the urban middle class. Even though the middle class was expanding steadily during the early 1980s, persistently high inflation rates impeded its stability and growth. The biggest social class to influence the growth of cities since the 1950s is the rural working class. Large numbers of rural poor migrated to the cities, and the movement continues. Prior to the 1950s, more than 80 percent of Turkish residents lived in rural areas, and most of the migrants who came to the cities were unable to find affordable housing. They built shelters on the outskirts of the cities without official permission or approval and, by 1980, up to 60 percent of the inhabitants of big cities were living in these primitive settlements, with no electricity, plumbing, or paved roads. Eventually, some of these neighborhoods were incorporated into the cities and provided with those amenities. About 65 percent of the poor classes depend on unskilled work for their livelihood.

The Turkish government subsidizes education at all levels, from pre-school to university, for all citizens. The law enforces attendance at primary and secondary schools, which accounts for 8 years of education and takes pupils to age 14 or 15. However, due to the insufficient number of higher education institutions, only a select few candidates for college actually get to attend. The selection process is conducted through a nationwide examination held every year, from which students with the highest scores are placed in accordance with their choices. There are also a limited number of private universities for those who can afford to pay.

The Ministry of Health is legally empowered to provide medical and preventive health care services. It establishes and operates hospitals and other health care centers, trains health personnel, and supervises private health facilities. The ministry also supervises the medical and health care personnel who work for the public sector. The pay for state-employed physicians is considerably lower than the earnings of private-practice doctors, and medical facilities are still concentrated in urban areas. Consequently, although steadily improving, access to medical and health care in most rural areas is inadequate.

WORKING CONDITIONS

Statistics for 1995 declared that the Turkish work-force is comprised of approximately 36 percent of the population, or 23.8 million people, 1.5 million of whom work abroad. The agricultural sector employs 46 percent of this workforce. Even though the number of female workers has increased considerably, the Turkish work-force is still male-dominated, with men making up 71 percent of the workforce.

The unemployment rate for 1999 was 7.3 percent, though the U.S. Department of State's Country Commercial Guide notes that it could be considerably higher, especially in urban areas, due to discouraged workers leaving the labor force. Even though Turkey has large numbers of unskilled and semi-skilled workers, there is a relative shortage of skilled labor, but the Country Commercial Guide also reports that the Turkish labor force is hardworking, productive, and dependable. In addition, labor-management relations have been generally good in recent years.

Labor laws in Turkey support a nominal 45-hour workweek, and the amount of overtime that employers may request is limited. Non-wage benefits that most workers receive include transportation and meals, and some jobs include housing and subsidized vacations. In recent years, fringe benefits have accounted for as much as two-thirds of total remuneration in the industrial sector. Even though the law mandates occupational safety and health regulations and procedures, limited resources and lack of safety awareness often result in inadequate enforcement.

With the exception of the police and the armed forces, Turkish workers have the right to unionize or join existing labor unions. The right to strike exists for most workers except those employed in the public utilities, education, and the petroleum, sanitation, and national defense industries, as well as those who are responsible for life and property protection. The law requires collective bargaining to have taken place before a strike. In order for a union to become a bargaining agent, the law requires that it must represent "50 percent plus one" of the employees at a particular work place and 10 percent of all workers in the particular branch of industry nationwide. However, since 1980 Turkey has been criticized by the International Labor Organization (ILO) for some of the above restrictions. The government has passed constitutional amendments to allow civil servants, who include central government employees such as teachers, to form unions, but it is still illegal for them to strike or bargain collectively.

Under the labor laws and constitution of Turkey, workers must be at least 15 years of age to qualify for full-time employment. Children of ages 13 and 14 can work in jobs that are not physically demanding or part-time if they are enrolled in school or in vocational training. Children are also prohibited from working at night or in physically demanding jobs such as mining. However, in practice, many under-age children continue to work in order to provide badly needed supplementary income for their families. In farming communities for example, the whole family can be seen at work during harvest times. The Turkish government has identified the child labor problem and is working with the ILO to find a solution.

COUNTRY HISTORY AND ECONOMIC DEVELOPMENT

2000 B.C. Hittites begin migrating to the Anatolian (Asia Minor) area of Turkey. Phrygians, Persians, Greeks, and Romans follow this migratory pattern.

1000-1100 A.D. Immigrants from Russia and Mongolia arrive in the area.

1100-1200. Islam becomes entrenched in Turkey and the residents are involved in the Crusade battles.

1300-1400. The Ottoman Empire is established and prevails as a vast trans-continental empire for several centuries. At the peak of its powers, the empire rules vast areas of northern Africa, southeastern Europe, and western Asia. However, it is unable to keep up sociologically and technologically with developments in Europe. The influence of nationalism causes the diverse ethnic groups within the empire to seek independence, which leads to the fragmentation of the 600-year-old empire.

1923. After World War I and the collapse of the Ottoman Empire, Mustafa Kemal Ataturk founds the Republic of Turkey. Under Ataturk's leadership, the new republic focuses on reform—political, linguistic, economic, and social. Ataturk forms the Republican People's Party, which stays in control until 1950. A republic based on secular governance replaces the once religious and monarchist rule of the Ottoman Empire.

1938. Ataturk dies, having established the ideological base of Turkey as secular, nationalistic, and modern. Since then, the Turkish military has assumed the guardianship of Ataturk's vision.

1945. Turkey joins the United Nations (UN). The Democratic Party is founded and the multi-party era begins in Turkish politics.

1949. Turkey becomes a member of the North Atlantic Treaty Organization (NATO).

1950. The Republican People's Party loses the elections to the Democratic Party.

1960. Growing economic and internal political problems under the Democratic Party government result in a military takeover.

1961. The civilian government is reinstated and a new constitution written, which enshrines the formation of a National Security Council, composed of the president, the prime minister and other key ministers, and representatives of the army, air force, and navy.

1968. Political disturbance erupts between political extremists of the left and right, bringing domestic instability.

1971. The military interferes in order to deal with domestic disturbance, and calls for a replacement government.

1973. General elections result in a coalition government, which falters a year later.

1974. Turkey occupies Northern Cyprus in order to prevent a Greek takeover of the island.

1975. Until 1980, political and social instability increases under the coalition governments of Suleyman Demirel and Bulent Ecevit.

1980. Under the direction of General Kenan Evren, the National Security Council moves to restore public order and remains in control of the government for 2 years. During this time, a national referendum appoints General Evren as president for a 7-year term. A temporary law bans former political party leaders from political involvement for 10 years.

1983. New elections bring in the Motherland Party under Prime Minister Turgut Ozal. Under Ozal's leadership, the country sees the introduction of liberalizing economic reform.

1987. The 10-year ban on former politicians is lifted by a referendum and the government calls a national election. Turgut Ozal wins a second 5-year appointment as prime minister.

1989. Parliament elects Ozal as president of Turkey.

1991. Early elections are held and result in former prime minister Suleyman Demirel's new True Path Party forming a coalition government with the Social Democratic Populist Party.

1993. Demirel is elected president after Ozal's death and Tansu Ciller becomes the country's first female prime minister.

1994. Turkey suffers its worst recession since World War II after government attempts to influence interest rates. In local elections, the Welfare Party wins local elections.

1995. After much political turbulence during a very short period of time, the True Path Party, Welfare Party, and Motherland Party each emerge with a similar number of electoral seats. The coalition collapses in a year and the True Path Party forms a coalition with the Welfare Party, making Necmettin Erbakan the first Islamic prime minister of Turkey.

1996. Turkey enters into a customs union with the European Union.

1997. The coalition government is as unsuccessful as the previous one. The military's political role is challenged by Erbakan's anti-secular efforts, and the military supports business and community groups calling for the government's resignation. In order to ensure compliance with the secular state, the military takes measures that include banning Erbakan from government participation.

1999. The country experiences 2 devastating earthquakes and 3 changes of government. The economy holds up despite expectations of an economic downturn. The 57th government of Turkey, like its predecessors a coalition, is elected. The new government restarts structural reforms to bring stability back to the Turkish economy. In December, the European Union declares Turkey a candidate for full membership.

FUTURE TRENDS

Turkey entered the new millennium with renewed hopes of economic, political, and social development and reform. The 3-party coalition that came into power in April 1999 has shown signs of stability, and many international sources are hopeful that the government will achieve its aims in the next 3-5 years. Its aggressive reform program addresses most of the country's outstanding critical issues, including the often appalling human rights record, undisciplined fiscal policy , and state interference in the economy. These financial measures should help to reduce inflation, and speed up privatization of public sector enterprises. There is also a program for structural reform in the social security and taxation systems. With the completion of the Southeastern Anatolian Project (GAP) within the next few years, the Turkish economy should receive a boost. In addition, the project could accomplish much in terms of reducing the disparities in income in different regions of the country, and between rural and urban areas. The possibility of joining the EU in due course should act as a major incentive for the nation to continue on a path of democratization, industrialization, and modernization.

DEPENDENCIES

Turkey has no territories or colonies.

BIBLIOGRAPHY

Colakoglu, N.M. Executive's Handbook: Turkey Almanac 1998. Istanbul: InterMedia, 1998.

Economist Intelligence Unit. Country Profile: Turkey. London: Economist Intelligence Unit, 2001.

Export Promotion Center of Turkey (IGEME), Trade Point Ankara. Economic Outlook 2000. <http://www.igeme.org.tr/english/economy/economy.htm>. Accessed January 2001.

Export Promotion Center of Turkey (IGEME), Trade Point Ankara. Foreign Trade of Turkey. <http://www.igeme.org.tr/english/trade/foreign.htm>. Accessed January 2001.

International Monetary Fund, Staff Country Reports. Turkey: Selected Issues and Statistical Appendix. <http://www.imf.org/external/pubs/CAT/longres.cfm?sk=3408.0>. Accessed December 2000.

Republic of Turkey. <http://www.turkey.org/start.html>. Accessed September 2001.

U.S. Central Intelligence Agency. World Factbook 2001: Turkey. <http://www.odci.gov/cia/publications/factbook/geos/tu.html>. Accessed September 2001.

U.S. Department of State, Bureau of European Affairs. Background Notes: Turkey. <http://www.state.gov/www/background_notes/turkey_9910_bgn.html>. Accessed December 2000.

U.S. Department of State. 1999 Country Reports on Economic Policy and Trade Practices. <http://www.state.gov/www/issues/economic/trade_reports/1999/turkey.pdf>. Accessed December 2000.

U.S. Department of State. FY 2001 Country Commercial Guide: Turkey. <http://www.state.gov/www/about_state/business/com_guides/2001/europe/index.html>. Accessed September 2001.

U.S. Library of Congress. Turkey: A Country Study. <http:// lcweb2.loc.gov/frd/cs/trtoc.html>. Accessed December 2000.

World Trade Organization, Ministry of Foreign Affairs and Trade. Trade Policy Review: Turkey: October 1998. <http://www.wto.org/english/tratop_e/tpr_e/tp83_e.htm>. Accessed December 2000.

—Tunga Kiyak

CAPITAL:

Ankara.

MONETARY UNIT:

Turkish lira (TL). One Turkish lira equals 100 kurus (pronounced kouroush). However, because of the high inflation rates Turkey has faced in the past 20 years, kurus are no longer used due to the low purchasing power. As of the end of 2000, there are coins of 10,000, 25,000, 50,000, and 100,000 liras. The 10,000 and 25,000-lira coins were expected to be phased out by 2001, and probably replaced with new coins of 500,000 and 1 million liras.

CHIEF EXPORTS:

Clothing, foodstuffs, textiles, metal manufactures.

CHIEF IMPORTS:

Machinery, semi-finished goods, chemicals, transport equipment, fuels.

GROSS DOMESTIC PRODUCT:

US$444 billion (purchasing power parity, 2000 est.).

BALANCE OF TRADE:

Exports: US$26.9 billion (f.o.b., 2000 est.). Imports: US$55.7 billion (c.i.f., 2000 est.).