AN OVERVIEW ON TURKISH ECONOMY AND RECENT DEVELOPMENTS

KEMAL UNAKITANMINISTER OF FINANCE

September 5, 2008

REPUBLIC OF TURKEY MINISTRY OF FINANCE

DEVELOPMENTS IN THE WORLD ECONOMY

33

VOLATILITY IN THE GLOBAL MARKETS…

300,000

320,000

340,000

360,000

380,000

400,000

420,000

440,000

01.0

1.20

0715

.01.

2007

29.0

1.20

0712

.02.

2007

26.0

2.20

0712

.03.

2007

26.0

3.20

0709

.04.

2007

23.0

4.20

0707

.05.

2007

21.0

5.20

0704

.06.

2007

18.0

6.20

0702

.07.

2007

16.0

7.20

0730

.07.

2007

13.0

8.20

0727

.08.

2007

10.0

9.20

0724

.09.

2007

08.1

0.20

0722

.10.

2007

05.1

1.20

0719

.11.

2007

03.1

2.20

0717

.12.

2007

31.1

2.20

0714

.01.

2008

28.0

1.20

0811

.02.

2008

25.0

2.20

0810

.03.

2008

24.0

3.20

0807

.04.

2008

21.0

4.20

0805

.05.

2008

19.0

5.20

0802

.06.

2008

16.0

6.20

0830

.06.

2008

14.0

7.20

0828

.07.

2008

11.0

8.20

0825

.08.

2008

4

GLOBAL GROWTH…

2,8

3,6

4,94,4

5,0 4,9

3,93,7

0

0,5

1

1,5

2

2,5

3

3,5

4

4,5

5

2002 2003 2004 2005 2006 2007 2008 2009

Real GDP Growth (Percent)

5

ANNUAL INFLATION IN SOME COUNTRIES…

Annual Consumer Prices Index

(Percent)

2,6

6,7

2,0 1,8

9,7

6,8

13,1

10,0

5,9

12,1

0

2

4

6

8

10

12

14

Czech Republic Iceland China Belgium Turkey

2006 2008 July

66

GLOBAL ENERGY PRICES…

Annual Energy Prices Inflation

(Percent)

9,8 9,0 9,4

24,1

18,2

22,5

0

5

10

15

20

25

G7 OECD - Europe OECD - Total

2006 2008 J uly

77

GLOBAL FOOD PRICES…

Annual Food Prices Inflation

(Percent)

1,7

2,72,2

6,9

8,4

7,2

0

1

2

3

4

5

6

7

8

9

10

G7 OECD - Europe OECD - Total

2006 2008 J uly

8

CAPITAL INFLOWS TO THE DEVELOPING COUNTRIES…

113

228

341

521

568

782

731

0

100

200

300

400

500

600

700

800

2002 2003 2004 2005 2006 2007 2008

Net Private Capital Inflows(Billion dollar)

DEVELOPMENTS IN THE TURKISH ECONOMY

10

GROSS DOMESTIC PRODUCT…

230

660

773

0

100

200300

400500

600700

800

2002 2007 2009 Program

Gross Domestic Product

(Billion Dollar )

1111

GROWTH…

6,25,3

9,48,4

6,9

4,5

7,66,6

0

2

4

6

8

10

2002 2003 2004 2005 2006 2007 2007-1 2008-1

GDP Growth (1998 Based, Percent)

1212

INFLATION…

Annual CPI Inflation(Percent)

29,7

18,4

11,8

8,49,7

7,79,3

7

12

17

22

27

32

2002 2003 2004 2005 2006 2007 2008 August

1313

PUBLIC SECTOR BORROWING REQUIREMENT…

7,0

12,1

10,0

7,3

3,6

-0,3 -2,00,0

-2

0

2

4

6

8

10

12

14

1990-2000

Average

2001 2002 2003 2004 2005 2006 2007

Public Sector Borrowing Requirement/GDP

(Percent)

1414

PUBLIC DEBT STOCK (EU DEFINITION)…

73,767,4

59,2

52,346,1

38,8 37,0 35,033,0 31,0 30,0

0

10

20

30

40

50

60

70

80

General Government Debt Stock (EU Definition)/GDP

(Percent)

1515

DEBT STOCK IN SOME COUNTRIES…

0

20

40

60

80

100

120

140

160

180

Japa

n

Ital

y

Gre

ece

Ger

man

y

Fran

ce

Port

ugal

Indi

a

Braz

il

UK

Pola

nd

Tur

key

USA

Indo

nesia

Kor

ea

Mex

ico

Chi

na

Rus

sia

179,

0

104,

6

89,7

64,5

63,9

63,6

58,0

45,1

43,3

43,1

38,8

36,9

34,1

24,6

22,8

18,4

5,9

General Government Debt Stock/GDP (2007, Percent)

1616

External Debt Stock/GDP (Percent)

28,0

23,2

19,4

14,6 13,611,1

18,716,0 16,3 17,2

22,424,0

37,5

56,2

47,3

41,2

35,0

39,0

0

10

20

30

40

50

60

2002 2003 2004 2005 2006 2007

0

10

20

30

40

50

60

Public External Debt Private Sector External Debt Total External Debt

EXTERNAL DEBT STOCK…

1717

215.323

88.359

250.593

78.316

274.195

74.897

270.275

42.051

258.191

30.462

248.312

11.193

246.821

9.622

0

50.000

100.000

150.000

200.000

250.000

300.000

2002 2003 2004 2005 2006 2007 2008 Q1

Net Public Debt Stock(Million TRY)

Total Net Debt Net External Debt

NET PUBLIC DEBT STOCK…

1818

58,1

41,9

53,7

46,3

58,5

41,5

62,4

37,6

62,8

37,2

68,7

31,3

69,8

30,2

0

10

20

30

40

50

60

70

2002 2003 2004 2005 2006 2007 2008 J uly

Foreign Exchange Structure of Central Government Total Debt Stock(Percent)

TRY Foreign Exchange

FOREIGN EXCHANGE DEBT…

1919

BUDGET DEFICIT…

11,5

8,8

5,2

1,10,6

1,6 1,4 1,4

0

2

4

6

8

10

12

2002 2003 2004 2005 2006 2007 2008 2009

Budget Deficit/GDP

(Percent)

20

BUDGET BALANCE IN SOME COUNTRIES…

6,0

4,5

3,4 3,2

2,72,4 2,3 2,2

1,6

1,10,8 0,7

0

1

2

3

4

5

6

Hun

gary

Gre

ece

Por

tuga

l

Pol

and

UK

Italy

Cze

ch R

epub

lic

Fra

nce

Tur

key

Bel

gium

Ger

man

y

Aus

tral

ia

Central Government Budget Deficit/GDP(2007, Percent)

21

PRIMARY SURPLUS IN SOME COUNTRIES…

5,8

4,0

3,5 3,53,3

3,12,5 2,4

2,0

1,00,9

0,50,3 0,2

0,0

1,0

2,0

3,0

4,0

5,0

6,0R

uss

ia

Bra

zil

Tu

rke

y

Be

lgiu

m

Arg

en

tina

Italy

Me

xico

Ge

rma

ny

Gre

ece

Po

lan

d

Ind

ia

US

A

Ind

on

esi

a

Po

rtu

ga

l

Primary Surplus /GDP(2007, Percent)

22

DEVELOPMENT OF DEBT SERVICES…

Interest Payments/GDP

(Percent)

5,7

10,1

12,9

14,8

6,17,0

0

2

4

6

8

10

12

14

16

2002 2003 2004 2005 2006 2007

23

DEVELOPMENT OF DEBT SERVICES …

85,9

71,0

56,3

38,233,4

31,9

0

10

20

30

40

50

60

70

80

90

100

2002 2003 2004 2005 2006 2007

Interest Payments/Tax Revenues(Percent)

24

STRONG REVENUE STRUCTURE…

60.205

82.484

100.342

119.627

137.560

155.315

174.615

198.601

0

20.000

40.000

60.000

80.000

100.000

120.000

140.000

160.000

180.000

200.000

2002 2003 2004 2005 2006 2007 2008 2009

Tax Revenues(Million TRY)

25

TAX REVENUES…

75,8

80,5

71

73

75

77

79

81

83

2002 2008

Tax Revenues/Budget Revenues(Percent)

2626

DEVELOPMENTS IN EXPORT AND IMPORT…

Export-Import(12 Month Cumulative Change, Percent)

16

19

22

25

28

31

34

J F M A M J J A S O N D J F M A M J J

2007 2008

Export Import

27

GLOBAL COMPETITION INDEX…

65

53

0

10

20

30

40

50

60

70

2002 2007

Turkey's Rank

28

DOING BUSINESS INDEX …

92

57

0

20

40

60

80

100

2002 2008

Turkey's Rank In The World

29

NUMBER OF COMPANIES ESTABLISHED…

30.842 32.259

40.925

47.401

52.699 55.350

33.819 33.142

0

10.000

20.000

30.000

40.000

50.000

60.000

2002 2003 2004 2005 2006 2007 2007January-

July

2008January-

July

Number of Companies Established(Number)

30

FOREIGN DIRECT CAPITAL INFLOW…

1,1 1,82,8

10,0

20,022,2

7,6

18,5 19,1

21,0

0

5

10

15

20

25

2002 2003 2004 2005 2006 2007 2008 January-

June

2008 2009 2010

Foreign Direct Investment(Domestic, Billion Dollar)

3131

ENERGY IMPORT…

9.204

11.575

14.407

21.255

28.859

33.883

17.584

29.434

0

5.000

10.000

15.000

20.000

25.000

30.000

35.000

2002 2003 2004 2005 2006 2007 2007

J anuary-

J uly

2008

J anuary-

J uly

Energy Import(Million Dollar)

3232

CURRENT ACCOUNT DEFICIT IN SOME COUNTRIES …

15,7

14,1

10,19,8

7,9

6,2 5,75,3 5,0

4,2

0

2

4

6

8

10

12

14

16

18

Iceland Greece Spain Portugal New

Zealand

Australia Turkey USA Ireland England

Current Account Deficit/GDP(2007, Percent)

33

FINANCING OF CURRENT ACCOUNT DEFICIT…

59

4237

3228

26

4

0

8

16

24

32

40

48

56

64

Turkey Australia Spain USA New

Zealand

Portugal Greece

Direct Investments/Current Account Deficit(2007, Percent)

34

ASSET SIZE OF BANKING SECTOR…

213250

306

407

500

582

657

0

100

200

300

400

500

600

700

2002 2003 2004 2005 2006 2007 2008 J une

Asset Size of Banking Sector(Billion TRY)

3535

CAPITAL ADEQUACY OF SECTOR…

Capital Adequacy Standard Ratio

(Percent)

16,7918,94

21,9023,73

28,2430,93

25,12

0

5

10

15

20

25

30

35

2002 2003 2004 2005 2006 2007 2008 J une

36

CREDITS/DEPOSITS RATIO OF THE SECTOR …

Credits/Deposits Ratio

(Percent)

35,542,6

52,0

62,2

71,2

80,084,4

0

10

20

30

40

50

60

70

80

90

2002 2003 2004 2005 2006 2007 2008 J une

3737

DEVELOPMENTS IN SOME STOCK EXCHANGES…

DOW JONES (USA)

10500

11000

11500

12000

12500

13000

13500

02/0

1/20

0809

/01/

2008

16/0

1/20

0824

/01/

2008

31/0

1/20

0807

/02/

2008

14/0

2/20

0822

/02/

2008

29/0

2/20

0807

/03/

2008

14/0

3/20

0824

/03/

2008

31/0

3/20

0807

/04/

2008

14/0

4/20

0821

/04/

2008

28/0

4/20

0805

/05/

2008

12/0

5/20

0819

/05/

2008

27/0

5/20

0803

/06/

2008

10/0

6/20

0817

/06/

2008

24/0

6/20

0801

/07/

2008

09/0

7/20

0816

/07/

2008

23/0

7/20

0830

/07/

2008

06/0

8/20

0813

/08/

2008

20/0

8/20

0827

/08/

2008

NIKKEI 225 (JAPAN)

12000

12500

13000

13500

14000

14500

15000

15500

16000

04/0

1/20

0811

/01/

2008

21/0

1/20

0828

/01/

2008

04/0

2/20

0812

/02/

2008

19/0

2/20

0826

/02/

2008

04/0

3/20

0811

/03/

2008

18/0

3/20

0826

/03/

2008

02/0

4/20

0809

/04/

2008

16/0

4/20

0823

/04/

2008

01/0

5/20

0812

/05/

2008

19/0

5/20

0826

/05/

2008

02/0

6/20

0809

/06/

2008

16/0

6/20

0823

/06/

2008

30/0

6/20

0807

/07/

2008

14/0

7/20

0822

/07/

2008

29/0

7/20

0805

/08/

2008

12/0

8/20

0819

/08/

2008

26/0

8/20

08

BRAZIL INDEX

45000

50000

55000

60000

65000

70000

75000

02/0

1/20

08

10/0

1/20

08

18/0

1/20

08

29/0

1/20

08

08/0

2/20

08

18/0

2/20

08

26/0

2/20

08

05/0

3/20

08

13/0

3/20

08

24/0

3/20

08

01/0

4/20

08

09/0

4/20

08

17/0

4/20

08

28/0

4/20

08

07/0

5/20

08

15/0

5/20

08

26/0

5/20

08

03/0

6/20

08

11/0

6/20

08

19/0

6/20

08

27/0

6/20

08

07/0

7/20

08

16/0

7/20

08

24/0

7/20

08

01/0

8/20

08

11/0

8/20

08

19/0

8/20

08

27/0

8/20

08

SHANGAY INDEX (CHINA)

2000

2500

3000

3500

4000

4500

5000

5500

6000

02/0

1/20

08

15/0

1/20

08

28/0

1/20

08

15/0

2/20

08

28/0

2/20

08

12/0

3/20

08

25/0

3/20

08

08/0

4/20

08

21/0

4/20

08

06/0

5/20

08

19/0

5/20

08

30/0

5/20

08

13/0

6/20

08

26/0

6/20

08

09/0

7/20

08

22/0

7/20

08

04/0

8/20

08

15/0

8/20

08

28/0

8/20

08

38

IMKB-100 INDEX (Istanbul Stock Exchange)…

IMKB-100 Index (Closing)

25 000

30 000

35 000

40 000

45 000

50 000

55 000

60 00002

.01.

2008

14.0

1.20

08

26.0

1.20

08

07.0

2.20

08

19.0

2.20

08

02.0

3.20

08

14.0

3.20

08

26.0

3.20

08

07.0

4.20

08

19.0

4.20

08

01.0

5.20

08

13.0

5.20

08

25.0

5.20

08

06.0

6.20

08

18.0

6.20

08

30.0

6.20

08

12.0

7.20

08

24.0

7.20

08

05.0

8.20

08

17.0

8.20

08

29.0

8.20

08

3939

TOTAL PORTFOLIO OF FOREING INVESTORS IN TURKEY …

77 7580

8786

91 92

0

10

20

30

40

50

60

70

80

90

100

27.06.2008 04.07.2008 11.07.2008 18.07.2008 25.07.2008 08.08.2008 15.08.2008

Portfolio of Foreigners in Turkey (Billion Dollar)

4040

PRIVATIZATION IS CONTINUING…

Privatization Administration 32 billion dollar

SDIF 7,4 billion dollarGeneral Directorate of State Airports Authority (DHMİ) 8,8 billion dollar

VakıfBank 1,3 billion dollar

TOTAL 49,5 billion dollar

Amount of Privatization Transactions Carried Out In The Period of 2003-2008 August

4141

STRUCTURAL REFORMS…

• Social security reform

• Employment reform

• Incentive law

• Reducing tax wedges on employment

• Preparing industrial inventory

• R & D reform

• Law of obligations

• New Turkish Commercial Law

• Simplification of VAT

4242

STRUCTURAL REFORMS …

• Fiscal rule

• Energy market reform

• Increasing own revenues of local governments

• Public civil service reform

• Strengthening financial and administrative structure of public

economic enterprises

• Build-Operate-Transfer Model for completing infrastructure

investments