Turkish inequalities

ISTANBUL – The growing number of gleaming skyscrapers, luxury shopping malls and noisy construction sites in Istanbul’s Levent business district are testimony to Turkey’s economic success story since the 2002 general elections. That wealth is however only trickling down the hill to the run-down Gultepe district, according to many residents there, who complain they have not reaped the rewards of record foreign investment, strong economic growth and falling inflation. Heading into Sunday’s general election, Turkey has witnessed an unprecedented economic boom since the Justice and Development Party (AKP) swept to power in 2002, with annual growth of some 7 percent and a surge in annual per capita income to $5,500 from $2,600. The next government, expected to be formed by the AKP, faces the challenge of spreading wealth beyond the upmarket districts of Istanbul and other cities to parts of the 74-million-strong EU candidate country which remain mired in poverty. «We are surrounded by skyscrapers but down the road are working-class districts where people haven’t seen the benefits of growth,» said 34-year-old Ustun Yildiz, selling cheap goods from a cart in a busy underpass below the skyscrapers. «There are maybe 2 or 3 million people who are wealthy in Turkey and the rest are struggling to get by,» he said. Turkey has actually made progress in reducing income inequality in recent years, but 20.5 percent of its population still lived below the complete poverty line in 2005, down from around a quarter a year earlier. Rebound from crisis The government of Prime Minister Recep Tayyip Erdogan trumpets the economic successes in its election manifesto – pointing to a surge in privatization revenues to $30 billion since 2003, compared with a total $8 billion in the previous 17 years. A $10 billion loan accord with the International Monetary Fund (IMF) has underpinned that success, instilling fiscal discipline which has helped to bring annual inflation to below 10 percent from 125 percent in 1994. But analysts say the strength of the recovery since the last election was in part a reflection of the depth of the financial crisis in 2001. «Turkey had emerged from the deepest economic crisis in its history. National product had shrunk by 25 percent… So even the smallest correction was going to create a result magnified in a huge mirror,» said Mahfi Egilmez, columnist with the liberal daily Radikal. The former treasury undersecretary said it would be wrong to attribute Turkey’s success simply to the government’s achievements, pointing to strong global trade growth and an exceptionally high level of liquidity in recent years. He said multibillion-dollar IMF support also played a role, while the start of Turkey’s accession talks with the European Union fueled a surge in foreign direct investment. «The numbers tell their own story with foreign investment rising to $20 billion in 2006 from $10 billion in 2005. Five years ago, the level was below $1 billion. It has really been a turnaround,» said Tahir Uysal, chairman of the International Investors Association of Turkey (YASED). He said the post-2001 crisis reform of the banking sector, which attracted foreign banks into the market, played a major role in this and a global cash surplus also contributed. The next government faces a series of challenges to build on the success of the last five years – from education and tax reform to intellectual property and the black economy. «The informal economy really is the greatest issue to tackle. The government has got to do something on this,» Uysal said. The black economy amounts to around 26-27 percent of gross national product, down from 30 percent a few years ago, but is still a major obstacle to economic development.

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