|Why Turkish business needs the EU|
|Financial sector craves stability membership will provide
Country's financial circles see membership drive as key, with businesses seeking a more predictable economy, access to fresh capital
The huge sigh of relief in Istanbul following the European Union's announcement this week that talks on Turkey's accession to the EU can go ahead could be heard as far away as Brussels.
Within minutes of European Enlargement Commissioner Guenter Verheugen's pronouncement that there were "no more obstacles on the table now," the national index of the Istanbul Stock Exchange rocketed, ending the day at an all-time high of 22,277 points.
The market had been in the mire since the government's decision to abandon its penal code reform bill, the adoption of which had been set by the EU as a condition for opening membership talks with Ankara.
Following Prime Minister Recep Tayyip Erdogan's ill-conceived warning to the EU to stay out of Turkish affairs, the financial markets issued their own warning as the value of Turkish lira plunged along with the stock market.
Erdogan took note. His assurance Thursday that the new penal code would not include a controversial clause criminalizing adultery finally gave the market cause for cheer. Even the beleaguered lira managed to post gains against the dollar and the euro following the news.
The wider row over Turkish membership in the EU club has so far incorporated history, race, religion and human rights, and last week adultery was added to the list. But away from the political soap opera, the relief in the market again underlines the importance of the campaign for EU membership within Ankara's financial circles.
The business community desperately wants EU membership since it will provide access to European capital and markets. But more importantly, membership will also provide the business community with much needed predictability in what is an historically turbulent economy.
In addition to social and human rights reforms, Turkey's desire for EU membership, along with International Monetary Fund cajoling, has already led to a range of economic reforms which have helped stabilize the financial sector. Ankara has deregulated its economy, privatized a raft of former state-owned industries and Turkey's workforce has increased productivity.
As a result of these changes, economic growth is forecast to be a very healthy 7.9 percent for 2004, and the triple digit inflation of the late 1990's has been dramatically reduced to around 10 percent.
It is not all clear sailing, though. A cursory look at Turkey's burgeoning current account deficit makes alarming reading. Official figures reveal a deficit in the first half of 2004 of $9.9 billion, almost double the previous year and way above the government's year-end target of $7.6 billion.
Most economists expect the year-end figure to come in at around $12.5 billion, around 4.5 percent of GDP, a worrying increase from last year's 3 percent. At the same time, despite an increase in exports, Turkey's trade deficit also widened to $19.4 billion in the first seven months of the year.
No one is suggesting all this heralds a return to the bad old days of 2000 and 2001, when an abrupt currency devaluation triggered Turkey's worst postwar financial meltdown. But it underscores the need for Ankara to stick to the current path of economic reform, and Turkey's business community believes the best hope for that is the stability that EU membership can bring.
It's worth bearing in mind that EU membership is not a foregone conclusion. But even getting as far as the negotiating table in Brussels will ensure increased investment as money moves out of the Eastern European nations that gained full EU membership earlier this year and into those in the waiting room.
The definitive ruling from the commission on whether Turkey has met the criteria for membership negotiations to take place is due on Oct. 6. If, as expected, the commission gives the green light, the 25 EU member states will decide in December whether they will give a firm date to start talks.
We may have to get used to the Turkish bourse breaking records.
Beirut,09 27 2004
The Daily Star