In the past Turkey’s economy has gone through difficult times, struggling to keep up with strong western economies as it underwent a period of privatisation. For the past 7 years Turkey’s economy has been stable, thanks to much needed reforms, and is now an important global economic player.
Turkey’s economy for most of its republican history was mainly state run with strict government controls over private sector participation, foreign trade, and foreign direct investment. In the 1980s a series of reforms was initiated by Prime Minister Turgut Özal designed to shift the economy from a state controlled, insulated system to a more private-sector, market-based model.
The reforms succeeded in spurring rapid growth, but it was punctuated by sharp recessions and financial crises in 1994, 1999 (following the earthquake of that year), and 2001. Lack of additional reforms, combined with large and growing public sector deficits and widespread corruption, resulted in high inflation, a weak banking sector and increased macroeconomic volatility.
Since the economic crisis of 2001 new reforms initiated by the finance minister of the time, Kemal Derviş, brought inflation under control reducing it to single-digit numbers, increased investor confidence and foreign investment, and lowered unemployment. Turkey has been gradually opened up its markets by reducing government controls on foreign trade and investment whilst privatising publicly owned industries. This liberalisation of many sectors to private and foreign participation continues today although amid political debate.
The GDP growth rate from 2002 to 2007 averaged 7.4% making Turkey one of the fastest growing economies in the world during that period. Although the World Bank forecasted a 5.4% GDP growth rate for 2008, due to the global contraction, Turkey's economy is expected to have only grown around 3.5%. While the long term affects of the world economic downturn are not yet known Turkey's Central Bank has revised the 2009 GDP growth down to 1.1% from 2% earlier, with the growth rate for 2010 seen at 2.8%, up from 1.2% previously. It is of popular consensus amongst Turkish financial analysts that Turkey will come through this crisis stronger then a majority of other countries due to its experiences in the recent past. It is hoped that the reforms undertaken in 2001 alongside the strong sense of national pride in the population will see the country turn around faster.
Turkey's economy is no longer dominated by traditional agricultural activities in the rural areas, but more so by a highly dynamic industrial complex’s in the major cities, mostly concentrated in the western provinces of the country, along with a developed services sector. In 2007, the agricultural sector accounted for 8.9% of the GDP, while the industrial sector accounted for 30.8% and the services sector accounted for 59.3%.
The tourism sector has itself experienced rapid growth in the last twenty years, and constitutes an important part of the economy. In 2007, there were 23.8 million visitors to the country contributing 18.5 billion USD to Turkey's revenues and 2008 saw an even larger growth with 30.9 million visitors spending over 21.8 billion USD.
After years of low levels of foreign direct investment (FDI), Turkey succeeded in attracting 21.9 billion USD in FDI in 2007 and is expected to attract a higher figure in following years. A series of large privatizations, the stability fostered by the start of Turkey's EU accession negotiations, strong and stable growth, and structural changes in the banking, retail, and telecommunications sectors have all contributed to a rise in foreign investment and all of these factors bode well for the future of Turkey’s economic success.
Because of the chronic inflation experienced in Turkey from the 1970s through to the 1990s, the lira experienced severe depreciation in value. Turkey has had high inflation rates compared to developed countries but has never suffered hyperinflation. From an average of 9 lira per U.S. dollar in the late 1960s, the currency came to trade at approximately 1.65 million lira per U.S. dollar in late 2001. This represented an average inflation of about 38% per year. Prime Minister Recep Tayyip Erdoğan had called this problem a "national shame".
In late December 2003, the Grand National Assembly of Turkey passed a law that allowed for the removal of six zeroes from the lira, and the creation of a new currency bringing it inline with other world currencies like the GBP, Euro and the USD. The New Turkish Lira was introduced on 1 January 2005, replacing the previous lira and cemented the acquisition of the economic reforms and erased the vestiges of an unstable economy.
On January 1, 2009, the New Turkish Lira was renamed once again as the Turkish Lira, with the introduction of new banknotes and coins.