Turkey Needs To Bring Economy Into Line With EU, World Bank Announces

by Ulrika Lomas, for LawAndTax-News.com, Brussels

08 March 2006

In its Country Economic Memorandum (CEM) on Turkey, published on Monday, the World Bank urged the Turkish government to aim to bring the country's economy into line with European norms as its accession talks with the EU progress.

Speaking following delivery of the report, Andrew Vorkink, the World Bank's Country Director for Turkey, announced that:

"It is a pleasure for the World Bank to present today the CEM on Turkey’s EU accession. The CEM follows the pattern of Bank work in other EU accession candidates in working closely with the country and the Commission of the European Union on detailed analyses of issues of critical importance for the country’s accession process."

"This study is intended to contribute to the ongoing process in Turkey of establishing a strategic vision on Turkey’s policy priorities during EU accession."

He continued:

"The analysis draws on the Bank’s broad experience from similar partnerships with new EU members and EU acceding countries from Central and Eastern Europe and from those countries’ own experiences in the accession process. The thrust of the analysis in this CEM addresses two simultaneous challenges: How could Turkey smoothly manage the EU accession process, by appropriately sequencing reforms and alignment with the EU Acquis while, at the same time, managing the broader development agenda that lies outside the scope of the EU Acquis, so as to prioritize reforms with the greatest benefits for growth with social inclusion."

"Meeting these challenges is feasible, but requires considerable focus and energy, as we have seen in recent years: Commitment to sound economic policies since 2001 has placed the Turkish economy in an excellent position to embark on a sustained path of faster growth. The process of European Union accession negotiations that was launched on October 3, 2005 will provide an anchor for the continuation and deepening of reforms in the years ahead, thus fostering Turkey’s growth potential and accelerating convergence to EU living standards."

"Indeed, as we have seen in other accession countries, EU accession holds the promise of significant economic and social benefits for Turkey:

• by strengthening the overall policy and regulatory framework, facilitated by the adoption of the EU Acquis;
• by making Turkey a better place to invest, especially by attracting higher FDI – a result we have already seen enormous progress on in the past year;
• by fostering absorption of superior know-how and promoting productivity growth;
• by extending the Customs Union with the EU to agriculture — with expected significant net benefits down the road for Turkey’s farmers, but also for consumers;
• through inflows of EU CAP and structural funds, which, with the right policy framework in place, will provide an impetus to regional and rural development, including in poorer areas of the country.
• Above all, by strengthening the investment climate, EU accession will create more employment opportunities for Turkey’s rapidly growing population."

The World Bank official then went on to state that:

"I would like to briefly focus on two policy areas that are particularly important for meeting Turkey’s challenges on the way to the EU. First, labor market performance will be a great challenge for Turkey on the way to EU accession."

"Employment grew by less than 1 percent per year over the past decade, far less than what is needed to provide jobs to Turkey’s rapidly growing labor force and to catch up with people leaving agriculture. Thus, the employment rate remains far from the “Lisbon agenda” target for EU members of 70 percent of the working-age population by 2010. Creating enough job opportunities at home and reducing the large pool of unemployed and unregistered workers will be a key factor to alleviate concerns about potentially large labor flows out of Turkey, seeking work in Europe, and would greatly support Turkey’s bid for EU membership. The same is true about the importance of education reform in Turkey to raise the skill levels of the future work force."

"Second, it is well known that ambitious fiscal consolidation has been the cornerstone of the Government’s program for macroeconomic stability since 2002. Maintaining a robust fiscal framework in the years ahead will be equally important. It will help further reduce the level of public debt, build even stronger confidence so as to reduce real interest rates, and also address challenges related to the deficit in the current account."

"Indeed, as strong growth of domestic demand is likely to persist in a fast-growth scenario, continuous fiscal discipline will be of great help in forestalling pressures on the current account. Improving the quality of fiscal consolidation will be a main challenge, as it is the only viable means of sustaining the adjustment in the future while making appropriate fiscal space for growth-enhancing expenditures, EU accession mandated investments in areas like the environment and lower taxes."

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