Turkey Foreign Trade
Sources: The Library of Congress Country Studies; CIA World Factbook
Trade played a minor role in the economy until 1980 but grew rapidly thereafter, the sum of exports and imports reaching about 49 percent of GNP by 1985. By 1994 this total had fallen somewhat, to 42 percent of GNP. The trend toward increased trade had begun in the 1970s as imports increased--primarily as a result of the rise in oil prices--and limited incentives for exports were implemented. The turning point came after 1980, when a realistic exchange rate, strict monetary policy, and efforts to strengthen bilateral cooperation with the country's trading partners led to sharply increased exports. Improvements in the balance of trade, in turn, allowed gradual liberalization of the import regime.
Turkey's trade policy traditionally has been subordinate to the country's etatist development strategy. The demand for imports historically has exceeded the country's supply of foreign currency, forcing the government to set up extensive controls to mobilize foreign exchange for products deemed essential for investment or production. As Turkish industry developed, the proportion of finished goods declined as a share of imports. Despite liberalization of import regulations after 1980, in the mid-1990s petroleum, machinery, and industrial raw materials continued to account for the bulk of Turkish imports.
Turkey's export performance since 1980 has been particularly striking. Traditionally, Turkey has exported agricultural products and minerals. As of 1980, total merchandise exports amounted to about US$2.9 billion, or 5 percent of GNP, of which 58 percent was agricultural products, 22 percent processed agricultural products and textiles, and 6.5 percent mineral products. By 1992, when exports reached 17 percent of GNP, the share of processed and manufactured products had risen to 82 percent, whereas the share of agricultural exports had declined to 15.0 percent and that of minerals to 1.7 percent (see table 9, Appendix A). The shift in the structure of exports resulted largely from the trend toward domestic processing of agricultural products before exportation, which caused them to be reclassified as industrial exports. Textile exports also increased during the 1980s, becoming twice as important as agricultural exports by 1992. Observers had expected that limitations on textile imports implemented by industrialized countries would hamper growth in textile exports during the late 1980s, but special concessions by the United States in 1990--related to compensation for Turkey's effort in the Persian Gulf crisis--helped open export markets even further. Industrial diversification has enabled Turkey to export a wide range of products, including rubber, plastics, petroleum products, glass, ceramics, and cement.
Turkey's trade is largely with Organisation for Economic Co-operation and Development (OECD) members, particularly the European countries, notwithstanding a sharp upswing in trade with Middle Eastern oil-producing countries in the early 1980s. Exports to the EC increased from 35 percent of total exports in 1950 to almost 45 percent in 1992, while imports from the EC grew from 33 percent to about 40 percent during the same period. Turkey's most important trading partner, Germany, accounted for 15 percent of imports and 24 percent of exports in 1993. Trade with Middle Eastern countries increased considerably after 1970, partly as a result of Turkey's increased expenditures for petroleum imports, and peaked in 1982 at 45 percent of total trade, declining to about 15 percent by the early 1990s. Turkey's commerce with Iran and Iraq was important because they bought food and other products and provided petroleum to Turkey in exchange (see table 10, Appendix A). Turkey remained neutral in the Iran-Iraq War, hoping for further improvement in trade when the two countries made peace. The embargo on Iraq after its invasion of Kuwait dramatically reduced Turkish-Iraqi trade. In 1988 Turkey sent 8.8 percent of its exports to Iraq and bought 10 percent of its imports from that country. Trade between the two countries was almost nonexistent in 1994.
Trade with the United States was much greater in the 1950s and 1960s than in the 1970s and 1980s. In 1992 imports from the United States constituted a little over 11 percent of Turkey's total imports, but exports to the United States represented only 6 percent of Turkey's exports (see table 11, Appendix A). Although trade with the Soviet Union began in the 1930s and the Soviet Union supplied much aid, in 1992 imports from the former Soviet Union constituted less than 1 percent of Turkey's imports, while exports were about 5 percent of the total. Historically, trade with the Soviet Union and Eastern Europe had increased to more than 10 percent of total trade during periods, such as the late 1970s, when Turkey experienced balance of payments difficulties.
After 1980 Turkey shifted its emphasis in trade policy from strictly limiting imports to actively encouraging exports. In March 1985, Turkey signed the General Agreement on Tariffs and Trade (GATT), which committed the country to abolishing most export subsidies over a three-year period. In January 1993, in accordance with its commitments under the GATT agreement, Turkey consolidated and reduced most import charges.
Turkey and the EC entered into an association agreement on December 1, 1964, with the aim of full membership for Turkey after the implementation of a customs union, which the Turkish government hoped would occur in 1995. Turkey's record in meeting the European body's tariff-reduction schedule has undergone several permutations. It was adhered to until 1976, when it was abandoned, only to be reinstituted in December 1987. Several Turkish industries--in particular the automobile industry--fear total integration, whereas the EU in the mid-1990s fears the competitive strength of the Turkish textile industry.
Balance of Payments
Throughout the twentieth century, Turkey has suffered from a shortage of foreign exchange, a problem that has continued despite the improved export performance of the 1980s and the early 1990s. During the 1950-80 period, three balance of payments crises followed periods of rapid economic growth. After the crisis of the late 1950s, brought on by inflationary financial policies and excessive use of short-term commercial credits, Turkey received substantial aid from an OECD consortium, and the country's external debt had to be rescheduled. The foreign-exchange shortage of the 1960s was less the result of inflation than of increased demand for imports. The 1970 devaluation, along with increased workers' remittances during the early 1970s, sufficed to overcome the problem. Turkey's improved balance of payments status during the first half of the 1970s allowed the government to resort to foreign borrowing to finance rapid economic growth. However, the 1970 devaluation, government deficits, and the 1973 oil price increase worsened inflation. After 1976 Turkey tried several reform packages, none of which effectively addressed the underlying causes of the deficits. In 1979 Turkey's creditors had to reschedule some US$14 billion in debt in an arrangement that delayed repayments of principal for five years.
The policy package introduced after 1980 enabled growth to resume, largely by improving the balance of trade. Exports grew at an annual average rate of more than 20 percent from 1980 to 1985, much more rapidly than imports, reducing the trade deficit from more than US$4.6 billion in 1980 to an average of slightly less than US$3 billion a year from 1983 to 1985. Nevertheless, Turkey's merchandise trade balance remained in deficit because of continued high levels of imports.
In 1993-94, Turkey experienced its fourth major balance of payments crisis in the past forty years, despite a decade of reforms and structural adjustment. An expansionist fiscal and monetary policy had led to a sharp deterioration in the trade balance in 1993 as imports soared to US$29 billion, while exports lagged sharply behind at US$15.6 billion (see table 12, Appendix A). A draconian adjustment program accompanied by an IMF standby agreement helped sharply reduce imports in 1994, but the trade deficit remained around US$4 billion and was projected at about the same level for 1995.
Economic reforms had strengthened the services account of the balance of payments in the 1980s, although this increase was insufficient to offset the periodic deterioration of the trade account in the 1990s. Meanwhile, remittances from Turkish workers abroad remained an important source of foreign exchange. Remittances averaged roughly US$2 billion annually from 1980 to 1985 but fell during that period from a peak of almost US$2.5 billion in 1981 to US$1.7 billion in 1985. In the late 1980s, they once again recovered, reaching a level of US$3 billion during the first half of the 1990s. The flow of remittances through legal channels is very sensitive to the real exchange rate and to foreign-exchange regulations.
Tourism was a relatively small source of services income until 1985 when earnings jumped to US$770 million, reaching around US$4 billion in 1994 as investments in this sector paid off. Interest payments on Turkey's foreign debt, which averaged about US$1.5 billion from 1980 to 1985, grew to US$3.2 billion in 1990 and were US$3.6 billion in 1994. They remained a major burden on the services account.
Turkey's deficit on the current account declined from US$3.4 billion in 1980 to about US$1 billion in 1985 as a result of the decline in the trade deficit and the increased surplus on the services account. Despite fluctuations mid-decade, by the end of the 1980s the current- account deficit was sharply reduced, although 1990 saw the deficit at US$2.6 billion as a result of high oil prices and loss of income stemming from the Persian Gulf War. Aid payments and certain policy measures led to a small surplus in 1991, but a lax fiscal and monetary policy by 1993 pushed the deficit to its highest level at US$6.4 billion. The policy measures enacted in coordination with the IMF helped the current account register a surplus of US$3 billion in 1994.
Turkey's capital account suffered from the heavy foreign-debt payments that came due in increasing amounts after 1985. Heavy borrowing in the late 1980s and early 1990s pushed principal payments up to US$4.4 billion in 1993, US$5.9 billion in 1994, and a projected US$7.7 billion in 1995. As a percent of exports of goods and services, Turkey's debt-service ratio rose to 33 percent in 1994, close to crisis levels.
Domestic savings were insufficient for the country's development plans, making continued foreign borrowing necessary. Direct foreign investment averaged only US$70 million from 1980 to 1985, as foreign investors hesitated to put money into the country. The growth of emerging market funds in the developed countries, combined with Turkey's economic- and financial-sector reforms, had led to a sharp increase in foreign direct and portfolio investment in the 1990s. In 1994 such investments were estimated at US$300 million. However, the country's 1994 balance of payments crisis was expected to dampen near-term enthusiasm for Turkish stocks and bonds.
Turkey's short-term debt increased in the mid- and late 1980s as the country scrambled to meet debt payments. In 1985 Turkey broke off negotiations with the IMF concerning a standby agreement and turned to commercial banks for short-term loans. In 1986 alone, Turkey's outstanding short-term debt increased by more than 40 percent to at least US$9.4 billion. As a result, short-term debt amounted to about 33 percent of total foreign debt, a development that sparked concerns abroad. By early 1987, it was reported that some foreign banks were limiting long-term loans to Turkey pending the outcome of the 1987 local elections. A similar situation transpired in 1993 in the run-up to the 1994 local elections. Short-term debt jumped from US$9.5 billion in 1990 to US$12.7 billion in 1992 and US$18.5 billion in 1993. The austerity measures enacted by the government and a surplus on the current account helped reduce the short-term debt to US$12.6 billion by the end of 1994, when long-term debt was US$52.8 billion. A little more than half of this amount was owed to private-sector creditors, which was a sign of the success of the economic reforms of the 1980s. Nonetheless, bilateral and multilateral creditors accounted for nearly US$18 billion. The relative shares of private and public creditors were expected to change during the mid-1990s as Turkey was obliged to borrow more from international agencies to stabilize its balance of payments.
Data as of January 1995
NOTE: The information regarding Turkey on this page is re-published from The Library of Congress Country Studies and the CIA World Factbook. No claims are made regarding the accuracy of Turkey Foreign Trade information contained here. All suggestions for corrections of any errors about Turkey Foreign Trade should be addressed to the Library of Congress and the CIA.