Starting with the last quarter of 2008, Turkey began to experience the adverse effects of the "Global Financial Crisis" in all sectors of its economy. Consequently, there were significant deviations from the macroeconomic goals set for the end of 2008, envisaged by the R. T. Erdoğan Government. The developments can be summarized as follows:

• Growth: The government foresaw a 5.5% GNP growth in 2008. Yet, this figure stayed at 1.1%.
• Inflation: Believing that the global crisis would pass Turkey "on a tangent", the government predicted that the inflation rate would drop to 4%.  However, despite the considerable contraction of the economy, the inflation rate has risen to more than 10%.
• Unemployment: As the government was late in detecting the global crisis and in taking necessary precautions, the year end unemployment rate was higher than expected at 13.6%.
• External deficit: Under the "2008 Program" the government had targeted that total exports and imports would reach 117 billion and 182 billion, respectively, at the end of the year. Therefore, it was predicted that the trade deficit would be around 65 billion. Yet, this figure reached 70 billion at the end of the year.   
• Current account deficit: In the aforementioned program, the government, based on the foreign trade performance, calculated that the current account deficit would remain at 39 billion.

As with every other year, as a result of unfavorable developments in foreign economic relations have continued a deficit in "döviz" budget at the end of 2008 and the country's total foreign debt has reached 290 billion dollars.

Foreign Economic Relations in the Year 2009

As Turkey was entering the year 2009, it was experiencing the adverse effects of the increasingly worsening global crisis. The effects of the recession process, taking place in USA and EU, was shrinking the world economy as well as world trade. Despite warnings coming from chambers of commerce and the opposition, the Government saw no need to refrain from setting and declaring optimistic economic goals for 2009. The primary macroeconomic goals were:

4% growth rate, 10% unemployment, 7.5% % inflation rate, foreign debt of 83 billion dollars and a current account deficit of 50 billion dollars…

The economic leadership that set off with these goals was ineffective at managing the unfavorable developments led to serious deviations from said macroeconomic goals.

In the beginning of September the Government belatedly announced the rather realistic "Medium Term Program", which takes into consideration the magnitude of the current recession the country is going through and how this will reflect on the year 2010. The program not only set new goals for the 2010-2012 period, but it also features amended figures for 2009.

Primary Indicators of the Medium Term Plan

	2008	2009	2009
	(O)	(T)	(P)
Growth (%)	1,1	4	-6
Inflation (%)	10	7,5	5,9
Unemployment (%)	13,6	10,5	14,8
Foreign debt (bn. $)	70	83	36
Current accounts def. (bn. $)	41,5	50	11

Source: 2009 and 2010 Program

(O) Occurred, (T) Target, (P) Predicted figures

Until the end of 2008, foreign trade was the engine of Turkey's economic growth. Entrepreneurs who undertook export-based production turned to importing inputs as a result of cheap capital. Under the import-substitute model, the economy appeared to be growing but it was not creating more employment opportunities, or reducing unemployment.

Spurred on by "high interest, cheap capital", this model became obsolete in 2009 as a result of the deepening recession. Foreign demand fell quickly, as did exports and particularly imports, as they were dependent on exports.  For the first time in years, this development led to a trade deficit that was lower than predicted. It would appear that this deficit, beyond all expectations, will fall to far below 30 billion dollars.

For years, OECD countries have constituted over 60%, and, EU countries, over 50% of Turkey's total foreign trade volume. This trend has drastically changed in 2009 as while Turkey's exports to these two regions have fallen, Turkish exports to the Middle East, Africa and the Turkic Republics have increased. This positive development was assisted by the Government's new, active and positive policy towards "Islamic" countries. For example, bilateral agreements were reached with Syria, Jordan and Libya to eliminate visa requirements.

Furthermore, in order to boost Turkey's ever shrinking and suffocating foreign trade, the Government is currently engaged in effort to enable  trade with  national currencies of Russia and Iran, countries with which we have multi-faceted trade relations.

The reduction of "hot money flows" originating from USA and EU has led to a reduction in foreign capital entering Turkey. In conjunction with the ambiguities brought about by the global crisis, it is calculated that the total amount of foreign capital entering Turkey, by the end of the year, will remain at 10 billion dollars.

According to figures, foreign investors prefer buying shares from the ISE rather than buying government securities.

Foreign accounts holders changed their course and began to buy shares from the stock exchange as a result of the US dollar maintaining a value of about 1,50 TL for the past two years as well as long-term interest rates and treasury bonds rates dropping to a one-digit number.  Consequently, foreign accounts holders made good money by trading in the stock exchange. 

In the course of the year a decision was adopted by the Constitutional Court that has displeased foreign accounts holders in Turkey. Foreigners were not paying any tax off the earnings they made in the money and capital markets. On the contrary, domestic accounts holders were faced with cuts of 10-15%. As this practice violated the principle equity, the Court decided to end the practice of "zero tax". It also requested that the Government mend this distortion within 6 months.

The NABUCCO Pipeline Project, which will bear multi-dimensional and important outcomes in the future for Turkey in the future, was signed on 15th of July 2009 with the convening of the participants. 1989 km of this 3282 km pipeline that is planned carry Caspian natural gas over Turkey to Europe, will traverse through Turkey. The construction of the project will begin in 2010 and its cost is estimated at 7.9 billion Euros.

In short, according to the 2009 yearend figures, the Turkish economy has been one of the worst affected economies from the global recession. In conjunction with the macro-level downturn, the level of unemployment, especially among the younger population, has reached record levels. The Government has thus far been unable to address this problem, which is causing harm to all of Turkish society, with a sustainable and coherent solution. Despite the decline in inflation and loan interest rates there have not been any positive developments with regards to production and investment.      

In contrast, there are positive developments in foreign trade relations. The great reduction in the foreign trade deficit and current account deficit has created an opportunity for Turkey to manage its foreign exchange supply without the IMF. In spite of the global recession, owing to the preparedness of Turkish banks and their effective management of the recession, the country is far from being afflicted with a financial crisis.

It is important for Turkey to adopt "low interest, high exchange rate", which is one of the essential policies for alleviating the burden on the economy.