The negative impact of the developments which took place in the financial markets at the end of January, 1994 also began to be felt throughout the real economy. Volatility in the foreign exchange markets increased, interest rates rose, the credit market stagnated, and unanticipated inventory build-up accompanied the contraction in domestic demand.

In April, 1994 the Government introduced a Stabilization and Structural Adjustment Program designed to correct the macro-imbalances in the economy and re-establish the conditions for sustainable growth. In addition to this, the Government initiated consultation meetings with the IMF. After reaching full agreement on the program with the IMF, a Stand-by Arrangement in the amount of SDR 509 million to support the Government Stabilization Program was approved by the Executive Board of the IMF on July 8, 1994. The core of the Stabilization Program consists of a set of strong measures to reduce the public sector deficit. This fiscal retrenchment is supported by a restrained monetary and credit policy, the elimination of the practice of backward indexation in income policies and by appropriate foreign exchange and interest rate policies.

Economic indicators of Turkey

Real GNP(at producers' prices), which grew by 8.1 percent in 1993, slowed down to 4.1 percent in the first quarter and contracted by 9.7 percent, 8.7 percent and 6.9 percent in the second, third and fourth quarters of 1994, respectively.

However, according to recent figures, under the Stabilization Program, real GNP contracted by 6.1 percent in 1994. On the other hand, due to the favourable environment created by the implementation of the Stabilization Program, real GNP growth rate was realized 10.0% in the third quarter of 1995. Moreover, parallel to the increase in economic activity, capacity utilization, especially in the private sector, is expected to reach its high 1993 level.

Source: State Institute of Statistics
Q3 : The new series in producers' prices

The measures taken up under the Stabilization Program were successful in restoring stability in the financial markets and decreasing interest rates to acceptable levels. The increase in the supply of foreign exchange enhanced stability in the foreign exchange market. Reserves picked up and confidence in the system was restored.

The economic recovery and higher real growth envisaged for 1995 is expected to affect trade performance positively. The far-reaching stabilization package has been reaping fruits as far as the measures on the balance of payments are concerned. Prior to the stabilization package, the foreign trade deficit and the resultant current-account deficit had both reached an alarming level. According to recent figures, it seems that this trend has been reversed. Turkey's current account surplus totaled $2.631 billion US in 1994, an all -time high in the history of the Republic. In the first ten months of 1995, exports reached $17.2 billion US, imports reached $27.8 billion US with a realized negative trade balance of $10.6 billion US.

As of December, 1994, the annual Consumer Price Index increase was 125.5 percent. As of the end of November, 1995, CPI increase was 83.8%. The rate of inflation measured in terms of the GNP deflator is expected to decrease to 79.4 percent in 1995.

Upon the formation of political consensus on the need for privatization, the new Privatization Law was enacted in November, 1994. Looking towards 1995, the new law is anticipated to facilitate the sale of the telecommunication section of PTT, the electricity and maritime enterprises. A privatization revenue of $654 million US was realized in 1994. In 1995, privatization sales of an expected $5.0 billion US are likely to generate a cash inflow of 2.4 billion, which corresponds to a 1.7 percent share in GNP.

On March 5, 1995, Turkey and the European Foreign Ministers decided to implement the final phase of the Ankara Agreement to establish a Customs Union with Turkey. In this framework Customs Union Agreement put into force on January 1, 1996. The Customs Union between Turkey and the EC provides that free circulation of goods, capital, services and people, as well as coordination of economic and financial policies. The Union also involves the elimination of all custom duties and the abolishment of all quantitative restrictions. In this context, the EC eliminated the quotas on its imports of textiles and clothing from Turkey.

The Customs Union will create a new atmosphere and impetus in the relations between Turkey and the EC and will also contribute in enhancing existing trade relations.

Source: State Institute of Statistics
Q3 : The new series in producers' prices