US embassy cable - 05ANKARA1867

UNCLAS ANKARA 001867 
 
SIPDIS 
 
SENSITIVE 
 
TREASURY FOR INTERNATIONAL AFFAIRS - MILLS/PLANTIER 
NSC FOR BRYZA AND MCKIBBEN 
 
E.O. 12958: N/A 
TAGS: EFIN, ECON, TU 
SUBJECT:  TURKEY: WORLD'S FASTEST GROWING ECONOMY 
 
 
1. (U)  Summary:  Turkey's real GDP grew by 8.9% in 
2004, surpassing expectations and making Turkey one of 
the fastest growing economies in the world -- if not 
the fastest growing.  A 14% increase in domestic demand 
was driven by the private sector and evenly balanced 
between consumption and investment growth.  In dollar 
terms, GDP per capita jumped 22.7% to $4,187 -- a 
record high for Turkey.  However impressive, such rates 
of growth cannot be sustained unless Turkey continues 
and deepens its reform process.  End Summary. 
 
2. (U)  The State Institute for Statistics (SIS) 
announced March 31 that final 2004 GDP reached 430.5 
billion Turkish Lira (USD 301.0 billion) in current 
prices, an 8.9% real increase from 2003.   Reflecting 
positive net factor flows, GNP also grew 9.9%.  This 
beat even the most optimistic market economists' 
expectations, which averaged 7.8% for GDP and 8.5% for 
GNP.  The GOT had originally set a 5% GNP growth target 
for 2004, which was revised to 10% later in the year. 
This data brought per capita GDP to USD 4,187, from USD 
3,412 in 2003.  According to State Minister Babacan, 
per capita income was USD 7,736 on a purchasing power 
party (PPP) basis, a record high for Turkey. 
 
3. (U)  Growth was driven by the private sector and was 
evenly-balanced between consumption and investment. 
Private sector investment grew by 45.5% and private 
consumption by 10.1%, driving a 14.1% increase in 
domestic demand.  Exports grew by 12.5%, while imports 
increased 24.7%.  By sector, the highest growth 
contribution came from trading, which grew 12.8%.  The 
other two fastest growing sectors were industry (9.4%) 
and business and personal services (8.0%).  One of the 
lowest contributions came from the agriculture sector, 
which registered only a 2.0 percent increase for the 
year as a whole, despite a 9.4% growth in the final 
quarter.   The lowest increases were in the financial 
services (1.1%), and public services (1.2%) sectors. 
 
4. (U)  Following the data release, both State Minister 
Ali Babacan and Deputy Prime Minster Abdullatif Sener 
praised the AKP government's economic performance to 
the press.  Babacan said the 2004 growth rate was the 
highest since 1966, and the PPP basis per capita income 
of USD 7,736 was a record for Turkey.  Babacan also 
noted that growth was driven by the private sector, and 
not based on a monetary or fiscal stimulus.  DPM Sener 
said the 2004 growth rate showed AKP government's 
success in implementation of reforms.  He noted that 
2004 private sector investment expenditure grew 45.5%, 
while public sector investment fell 4.5%.  Sener also 
pointed out that in 2004 the economy created 649,000 
new jobs. 
 
5. (SBU) Comment:  Turkish officials are rightly proud 
both of the growth rate and of the fact that it is 
private sector-led.  However, there is a risk that last 
year's strong performance will contribute to 
complacency on the part of policymakers in pursuing the 
reforms required to sustain the very high levels of 
growth over many years needed for Turkish incomes to 
one day converge with the European average.  To break 
out of Turkey's historical patterns of busts following 
booms, the government needs to make faster progress in 
reducing the role of government in the economy through 
privatization and deregulation, as well as in 
maintaining its commitment to sound monetary and fiscal 
policies.  Turkey is not there yet. 
 
6.  (U)  Detailed data is available at the SIS website: 
http://www.die.gov.tr/ENGLISH/index.html 
Edelman