Turkish economy warning

GENEVA (Reuters) – Turkey’s widening current account deficit and high jobless rate could make it vulnerable to external shocks, the World Trade Organization said yesterday in a review of the EU candidate nation. The WTO said «ambitious» reforms undertaken since the 2001 Turkish economic crisis had done much to stabilize the economy, reduce inflation and narrow the fiscal deficit, as well as bring Turkey closer to its goal of European Union accession. In the review, a regular exercise the WTO conducts with its 151 member states, the trade body called for more privatization of Turkey’s dominant state-run enterprises such as Turkish State Railways, Turkish Petroleum Company, Turkish Hardcoal Enterprises and Turkish Electricity Transmission Company. It said faster structural reforms, including privatizations and tariff cuts, «could attract larger FDI (foreign direct investment) inflows, avoid falling back into the boom-bust cycle of the past, increase the predictability of the trade regime, reduce the need for concessions, and enhance the integration of Turkey into the multilateral trading system.» Last month, the International Monetary Fund said Turkey’s improved economic fundamentals had created a disincentive for completing necessary reforms that would keep attracting foreign funds to the country. The Washington-based lender has estimated the Turkish economy would grow between 5.0 and 5.5 percent in 2007, accelerating to 5.5 percent next year. The WTO said Turkey’s merchandise exports have more than doubled since 2002, with more than half going to the European Union. Merchandise imports have also more than doubled in the period, and Turkey is a net exporter of services, with a surplus of $13.4 billion in 2006 from $7.9 billion in 2002. The WTO said that manufacturing is «a major beneficiary» of Turkish state aid, through various duty schemes and tax concessions as well as export credits and guarantees. Customs tariffs protecting the sector have discouraged investment in some manufacturing activities, such as chemical and plastic industries, the review found, adding that «high effective protection of industries such as textile and apparel, beverages, and tobacco products hampers their competitiveness.» Turkey’s farm sector is also shielded with relatively high tariffs, and Turkish agricultural products are only partially covered under the country’s preferential trade deals with other countries, the WTO said. «The high level of tariff protection in agriculture has limited the exposure of the sector to competition, and has made it difficult for its products to be exported or to be used as inputs in the production of export goods without support, including subsidies,» it said. «This could well hinder Turkey’s long-term performance.»