Turkey's economy, fattened with foreign
investment during its boom-times, has stalled amid warnings its model is
unsustainable.
The country's $800 billion economy remains
among the 20 biggest in the world -- but the IMF
says it can't last and remains too vulnerable to dangers
outside its borders. The OECD has
also weighed in with concerns, saying the country's addiction
to foreign money risks volatility.
How did it get into this
mess?
Many developed countries struggled with
growth after the global financial crisis. But not Turkey, which grew substantially
over the last decade -- the country's GDP grew by average 5.5% per year.
The government of Recep Tayyip Erdogan, now a
presidential candidate, was praised for its ability to attract foreign
investors from Europe and emerging markets such as Russia and China.tension
in region
The rapid economic growth was largely fueled
by cheap credit pouring into the country. As the crisis hit developed
economies, investors turned to emerging markets, which promised higher returns
than depressed Western markets.
For years, Turkey enjoyed a foreign-funded
construction boom. House prices have soared more than 50% since the end of 2009
and both the country's GDP and per capita income have increased threefold since
2003.
But the party ended with the U.S. Federal
Reserve announcing a scale-back in its stimulus program last summer. Suddenly,
there was less cash available to invest.
With more security in the U.S. economy,
investors started pulling their money from the emerging markets.
Turkey's growth slowed to just above 2% in
2013 and the country's currency, the lira, slumped further
in January this year. That forced Turkey's central bank to ratchet
up its interest rates from 7.7% to 12% -- showing the bank's determination to
prevent foreign capital outflows.
Erdogan strongly opposed the bank's move to
raise the rates. He argued it would hurt Turkey's growth, blaming the lira's
tumble on the opposition and an "interest rates lobby," and saying it
was the result of a conspiracy.
What's the economy doing
now?
The OECD expects 3.5% growth in 2014, picking
up slightly from 2013, but high inflation is pushing the country back and
hurting consumers. At around 9%, annual inflation is nearly double the Turkish
central bank's target of 5%.
This, coupled with the country's low
employment rate leads to high levels of poverty. In an OECD study, one in three
Turks said they were not able to afford sufficient food. The OECD average is
one in seven.
Furthermore, 20% of Turks live below the
relative poverty line, meaning they survive on less then half of the Turkish
median income. This makes Turkey the third poorest developed nation, with
Mexico and Israel lagging behind.
Turkey's strategic position means the country
is the bridge between Asia and Europe. Its membership of NATO and candidacy to
join the European Union reflect its importance.
But unrest and uncertainty has already cost
the country millions, with its stock market losing a third of its value last
year.
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