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analyzing Turkish economy

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How do the following facts determine the financial health of Turkey? What does it mean to a business owner that is planning a joint venture with another company in Turkey?

Despite credit growth in recent years, government securities still constitute a sizeable share in banks' portfolios (about 30% of bank assets) and credits to the real sector represent only 25 percent of the GDP.

Turkey plans on structural reform. ?is critical to ensuring that the banking system is able to return to its core activity, i.e. acting as a financial intermediary between private investments and savings?

Following the crisis in 2001 and thanks to structural reforms since then, the Consumer Price Index (CPI) inflation declined to single-digit levels in 2004 and Turkish debt has become manageable and sustainable. In 2002, gross public debt to GDP ratio was over 90%, and today, it is under 60%. Thus, the debt burden on the whole economy has gradually lost its importance. In April 2001, the Central Bank granted independence with an amendment to the Law. The primary objective of the Bank is to achieve and maintain price stability. The exchange rate regime and the inflation rate targets were set by the Central Bank and the government together. The monetary policy to be implemented and the monetary policy instruments to be used in order to achieve and maintain price stability are determined on the discretion of the Central Bank. The Central Bank supports the growth and employment policies of the Government, provided that these policies are not in conflict with the objective of achieving and maintaining price stability.

The facts represent that over the last 5 years the Turkish economy has been one of the fastest-growing economies in the world today. The IMF (International Monetary Fund) ranks 18th in domestic product based on purchasing power parity and fifth amongst developing countries in Foreign Direct Investment.

The export volume has exceeded 100 billion and total trade volume in excess of a quarter trillion USD.

The financial sector consist of 46 private banks, however a majority are still state owned. The economy has moved from a cash economy to a credit economy, which leaves the credit sector as one that is doing very well and continue to see future growth in.

The government securities are 30% of bank assets while the credits to retail sector is 25% of the GDP. There is a strong focus on financial intermediary between the private savings and investments.

Since structural reform the CPI index has declined to single digit levels in 2004 and the Gross Public Debt is under 60%. The central bank approves the growth plan Turkey has developed.

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Solution Preview

Fact 1) Hurts Turkey and business owner because there is too much credit that is held in banks that cannot circulate as loans in the economy. This hurts business growth by making it harder for companies to borrow.

Fact 2) Helps Turkey and business owner because these reforms may alleviate the problems of Fact 1 above.

Fact 3) Helps Turkey and business owner because lower inflation helps contain costs with relatively lower prices and wages, making Turkey more competative in ...

Solution Summary

Analyzing Turkish economy as it relates to a foreign partner in a joint venture