Economic challenges call for concerted action
Recep Tayyip Erdogan, prime minister, Turkey
The G20 has emerged as an organisation that can deliver effective global governance, and Turkey believes that its members should build on the progress made by delivering decisive action in response to today’s economic problems
From "The G20 Cannes Summit 2011: A New Way Forward," edited by John Kirton and Madeline Koch,
published by Newsdesk Media Group and the G20 Research Group, 2011
To download a low-resolution pdf, click here.
The G20, as a new institution, was established in response to the 1998 financial crisis, which started in the emerging economies in Asia and spread across the globe. At that time, G7 finance ministers and central bank governors felt the necessity to broaden the dialogue to systemically significant economies from various regions around the world. After a lengthy, thorough selection process, the current members – Turkey being among them – were invited to join the G20. The finance ministers and central bank governors met annually. In 2008, the world experienced a new and unprecedented wave of economic and financial crisis, which shattered the most robust economies, as well as more fragile ones. G20 members were called upon to further strengthen international cooperation to tackle this new global financial meltdown. In November 2008 in Washington, the G20 leaders convened for the first time, to restore global growth and initiate necessary reforms in financial markets. Subsequently, G20 summits have been held in London and Pittsburgh in 2009 and in Toronto and Seoul in 2010.
Thanks to our concerted and decisive actions, further deepening of the global economic crisis was averted. With its balanced membership of both advanced and emerging economies, the G20 has helped the world deal effectively with the crisis. It has delivered significant, concrete outcomes – including the broadening of financial regulation, policy coordination and enhanced macroeconomic cooperation – among its members. Furthermore, global governance has dramatically improved to better reflect the role and the needs of emerging economies.
Landmark reforms of the International Monetary Fund (IMF) and multilateral development banks overhauled the governance structure and expanded the financial resources of these institutions. Turkey has benefited from these reforms, as have other emerging economies. International financial institutions have made new lending tools available for countries faced with possible liquidity shocks. Steps have been taken to restructure the international financial system and to achieve strong, sustained and balanced growth.
The distinctive characteristics of the G20 platform – its informality, flexibility and balanced membership consisting of advanced and emerging economies, and its consensus-based decision-making – enhance international policy coordination and enable progress on complicated issues. The G20 has thus emerged as the premier platform for global economic cooperation, with the ability to achieve tangible results.
Indeed, the G20 has strengthened the role of emerging economies in global governance. Emerging economies have started taking more responsibility, in line with their growing weight in the global economy and their increasingly prominent role in global politics. They have proven their resilience during the crisis, and have become the major drivers of the recovery.
Turkey, with its active participation, helped reflect the views of the emerging economies. In addition, to inform the non-G20 members and ensure their support, Turkey has contributed to the G20’s outreach. As chair of the South-East Europe Cooperation Process last year in Istanbul, we organised a G20 outreach panel aimed at informing regional policymakers about the G20 agenda and sharing their views with the rest of the G20 members.
In May 2011, Turkey hosted the Fourth United Nations Conference on the Least Developed Countries (LDCs) in Istanbul, to adopt new strategies for the sustainable development of LDCs. The Istanbul Programme of Action for the Least Developed Countries for 2011-20 was endorsed. The programme supports the G20’s stance on the LDCs and their development. Turkey is committed to play its part in assisting the development process of the LDCs, and has mobilised resources to this end.
In September, Turkey also organized the Conference on Commodity Price Volatility, one of the G20’s 2011 priorities. This conference covered issues related to fossil fuels and agricultural price volatility, and the commodity derivatives market. It provided substantial input into the preparations for the Cannes Summit.
Since 2009, Turkey has been one of the fastest-recovering economies. In addition to the robust stance of its public finance, strong capital structure and effective risk-management in the banking sector, Turkey mitigated the adverse effects of the crisis. Timely reforms to its banking system protected Turkish banks, so that no government resources were required to rescue any bank. Nor did its deposit guarantee system need to change. Moreover, timely exit strategies in fiscal and monetary policies have been effective. Fiscal discipline has always been an important element of Turkish economic policies.
Turkey was one of the first countries to announce a medium-term programme with an exit strategy, in September 2009. For the next several years, Turkey has set solid targets for its budget deficit and ratio of debt to gross domestic product (GDP). At the peak of the current crisis, Turkey’s budget deficit ratio increased to 5.5 per cent of GDP. Last year ended with a deficit of 3.7 per cent of GDP. For 2013, the target is 1.1 per cent of GDP. At the end of 2009, Turkey’s public debt was 45.5 per cent of GDP, which decreased in 2010 to 41.6 per cent. Turkey is one of the few countries in the region to have decreased its debt-to-GDP ratio in 2010. For 2013, the target is 37 per cent of GDP.
High consumer confidence, high producer confidence and high confidence in the banking sector have been demonstrated in domestic investment performance, international capital flows and increased credit ratings. Economic activity continued its post-crisis recovery performance throughout 2010 as the Turkish economy grew by 8.9 per cent. Total output increased from pre-crisis levels.
The main sources of Turkish growth are robust growth in the services sector and double-digit growth rates in the industrial sector, private investments and consumption. While the labour force participation rate has increased, the strong growth has translated into significantly decreased unemployment. This is the result of high growth and strong labour market policies.
Momentum maintained its pace in the first quarter of 2011, with a positive trend in confidence indicators, industrial production and strong domestic demand. Hence, international organisations, including the European Commission, expect Turkey to be one of the fastest-growing economies this year. However, buoyant domestic demand, rising energy imports and relatively weak external demand have adversely affected the country’s current account balance and led to a current account deficit of 6.6 per cent of GDP in 2010. On the other hand, this deficit is well financed and official reserves are continuously increasing. Turkey has implemented the necessary monetary and macro-prudential policies.
Structural reforms implemented in the past decade are a primary reason for Turkey’s favourable economic performance and its recovery. Our country is determined to step up the reform process so that it can sustain strong growth and achieve a more resilient economic structure. One priority is labour market reform. Active employment policies will increase employment and enhance the quality of labour, to increase efficiency gains and sustain growth. Another priority is energy investments, in order to ensure a reliable supply of energy for the growth process and to lower dependency on fossil fuels, which Turkey mostly imports. Structural reforms in health and education are accelerating. Judicial reforms, as well as reforms to harmonise with European Union legislation, are also in progress. Enhancing the investment environment for the private sector will continue to be a priority.
However, despite significant achievements, serious risks prevail in the global economy: sovereign risks of advanced economies, unbalanced growth prospects between advanced and emerging countries, growing concerns on unemployment, and soaring commodity prices.
The spreading sovereign debt crisis threatens the economic stability of the eurozone. Furthermore, the problem with the advanced economies is not solely fiscal.
Poor growth prospects and declining competitiveness lie at the core of the crisis. Without creative solutions for boosting the productivity and potential growth for these economies, I fear that the effects of the fiscal measures will be short-lived. The stability and growth prospects of the entire global economy are at stake.
Soaring commodity prices are also making the prospects for global growth worsen, through supply-side strains. There is a clear need to dampen excessive price movements through enhancing the regulation of these markets, thereby increasing the transparency of the price-setting mechanisms, as well as improving the supply of certain commodities. Moreover, worldwide efforts are necessary to increase the use of clean energy by investing in research and development and in innovation.
Another critical challenge is fighting structural and long-term unemployment. Stimulus measures have not been enough to reduce structural unemployment. Urgent action is warranted to reduce the mismatch between the skills of the workforce and the demands of the economy.
Therefore, Turkey attaches great importance to furthering efforts to strengthen the cooperative spirit among G20 members. All necessary actions should be taken to overcome these challenges. It is thus critical at Cannes to agree on concrete policy actions for strengthening the global economy and reducing global imbalances.
These challenges also call for the development of a well-structured system to monitor individual country policies, to assess spillover effects and provide coordination to reach more strong, sustainable and balanced global growth. The IMF’s spillover reports are a good start. However, a comprehensive review and restructuring of IMF surveillance would further strengthen policy coordination. This also requires enhancing the IMF’s effectiveness and legitimacy. The latest quota and governance reforms must be implemented and the voice of emerging markets improved. At Cannes, we G20 leaders should reaffirm our commitment to completing the approval process by the 2012 annual meetings of the IMF and the World Bank.
The financial sector is also high on the Cannes Summit agenda. The focus is now on implementing the agreed reforms. The G20’s main role should be to maintain a level playing field across countries. Reducing reliance on credit rating agencies is of utmost importance, so that they do not stimulate aggressive market reactions.
The scope of the G20 agenda with regard to development is large. The G20 must thus be selective, based on the general principles of the Seoul Development Consensus for Shared Growth, and focus on achievable targets.
The G20 has been effective in forging consensus and facilitating cooperation among its members. It should keep its flexibility, balanced membership and conciliatory role in key economic and financial issues.
To enable more effective oversight of these critical objectives, G20 members can discuss further institutional steps, such as establishing a permanent secretariat. In doing so, we should not overlook the trade-off between flexibility and formality. The pros and cons should be elaborated and a balanced approach should be adopted. Yet, if a consensus is achieved, Turkey would be pleased to host this office in Istanbul, which would be the ideal location for such a global institution. My government is also ready and willing to host a G20 summit, in either 2013 or 2014.
Turkey believes that, building on the important progress achieved, the G20 should continue to put in effect the right policies and measures. We believe that today’s key economic challenges require a concerted, decisive action, which the G20 can deliver. Therefore, the spirit of cooperation among the G20 members should prevail to face future challenges.
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