The end game for developing countries, in this day and age, is the ability to attract and maintain capital investment. The catalyst to this inflow is, broadly speaking, a mix of infrastructure rehabilitation and reform. There are numerous trajectories in the developed world, but in many instances reform is slow, and the corollary of sustainable economic growth suffers. Most developing countries, dragged down by decades, sometimes centuries, of corruption and inefficiencies built into the system, see their economic fortunes stutter. Key to shifting gears into higher growth, higher employment, and better overall development has been countries’ ability and willingness to embark on reforms and business promotion.
In this respect, Lebanon may have quite a few lessons to learn from Turkey. As Turkey has made headway into strengthening and revitalizing its public sector and improving its efficiency, it has become, within the span of three decades, a regional economic powerhouse that is close to joining Europe. This has reshaped its image. Obviously, integrating with Europe is not a Lebanese objective, but the mechanisms of change and reform to enter are ones that are applicable to a lot of countries.
Turkey is at a crossroads. After hitting the most severe crisis of its recent history over 2000 to 2001, the economy bounced back and is now among one of the fastest growing economies in the Organization for Economic Cooperation and Development (OECD). A new institutional framework for monetary and fiscal policies, as well as for product, labor and financial markets, infrastructure, industries, and agricultural support, has opened a window of opportunity to escape from the triple evils of low confidence, weak governance and high informality, which underpinned the boom and bust cycle of the past – so as to embark upon on a path of growth. Success will depend on fully implementing and completing the new policy framework, but at least the path has been laid down.
Following the crisis of 2000-2001 which saw multiple currency collapses coupled with a run on Turkish bonds, the effort to reform, based on EU convergence criteria as well as strong pressure from the IMF, has led to a purge of sorts on the political landscape, and has led to an overall effort to overhaul the macroeconomic platform of the government. While Turkey still suffers from many “growing pains,” it has set itself in an international straight jacket of change. This would be an ideal situation for Lebanon. Since organic change remains highly doubtful with ongoing political bickering and the eternal sectarian debate, international economic pressure or other incentives would be highly beneficial. High unemployment and poverty are typically mirror images of the same sequence of symptom and cause. The experience of the past decade in developing economies has demonstrated that the high priority of economic reform and privatization of inefficient public entities is key to long-term efficiency and job creation. Yet this effort, which initially leads to job cuts, is frustrated by the absence of alternative job-creating mechanisms, which creates a vicious circle that does not augur well for the future. What is needed is a private sector framework with public sector support and participation to inculcate a culture of venture capital as an effective means for job creation, accelerated growth, and enhanced innovation and competitiveness in emerging economies. Turkey has been able to promote a private venture culture, which has not only offset some contraction-related aspects of tighter fiscal policy, but has also increased multinational interest in Turkey and has seen the GDP of Turkey rise dramatically over the last five years.
Taking up the mantle
An area of which Lebanon would do well to emulate Turkey, is in gathering and building political consensus on the economic and fiscal imperatives. For now, much of the politics in Lebanon revolves around feudal/tribal issues, and while the fiscal time bomb is ticking away, there is little effort, bar those of the prime minister and his cabinet, to ring the budgetary and macroeconomic alarm bell. Much like in Lebanon, the level and growth rate of public debt became the primary source of macroeconomic vulnerability in Turkey following the 2001 crisis, which saw a public net debt to GNP ratio of around 90% while raising concerns in domestic and international markets about its sustainability. The debt stock’s short maturity and the large share of foreign-currency linked securities implied particularly high rates of rollover on domestic and international markets, increasing the vulnerability to interest rate and currency rate shocks. Although Turkey has made remarkable progress in restoring debt sustainability with high primary surpluses, lower borrowing costs, currency appreciation and high growth – which all helped reduce the public net debt to GNP ratio to about 70% at the end of 2003 – risk factors remain, albeit to a lesser extent.
Turkey, in its drive to enter an economic order and deliver the EU criteria, has forced itself into drastic reform on the way the public sector operates, and while it did resort to privatization, it is not clear that privatization alone will do the trick in Lebanon as many pundits seem to think.
Proceeding with caution
Privatization, without the fostering of private venture capital is tantamount to a fire sale of state assets, and Lebanon would do well to emulate Turkey’s efforts to promote the incubation of many private businesses, offering tax breaks and facilitating their access to capital markets. So, while Turkey did lower the burden of the public sector through reform and privatization, it also nurtured private enterprise, and created an environment of trust for Turkish nationals wishing to set up shop in Turkey.
Please don’t write in to point out the differences between Turkey and Lebanon; they are obvious. Turkey is bigger, more industrialized and more ethnically homogenous, but in a lot of ways, its transition into a more liberal, more vibrant and more globalization-friendly place is replicable in many emerging countries including Lebanon.
Perhaps the most delicate but relevant aspect of modern Turkey, in my opinion, is the secular nature of its system. Turkey has made a clear separation between state and religion, and while Islamists have made significant headway into the political arena, the overall functioning of the state is unperturbed by religion. We could learn a lot from this experience, for to become a genuinely open system and to integrate the international community; a transparent and strong civil society needs to flourish. There is no alternative. Turkey and its youth, much like in Lebanon, is clearly immersed in Western culture, but the difference is, Lebanon’s elite is cosmopolitan but its political system and its corresponding social fabric remains archaic and racist to a large extent. Yes, the make up of Turkish society is truly homogenous, with Muslims representing 99% of the population, but the society is quite secular and the political lines are drawn based on ideas and platforms.
Turkey has reoriented its priorities towards business and growth areas, and has continued to shrink the public sector. While this has caused some dislocations, it has been the pillar of the revival of Turkey. More importantly, and in order to continue receiving aid and easy access to the global debt market, Turkey has forced itself into a long introspection of its economic raison d’etre, something badly needed in Lebanon. Turkey has understood that in order to prosper, it must comply with a path of reform set out by the IMF, OECD and World Bank. There is simply no other way, and rather than dump its state assets in an ad hoc way, it has gradually improved their operating efficacy before privatizing.
Getting with the program
Turkey has grasped and implemented the notion that there is no debt solution without reform, and Lebanon should get in that frame of mind. Any thought of debt relief by the international community is ludicrous in Lebanon, because most of the debt is held by Lebanese banks. So there is no short cut. Turkey also realized that there is no sense in maintaining a large government when instead, it could rely on private business to be the engine of growth. It attracted strong minded and educated Turks back into Turkey to create businesses and jobs. We, in Lebanon, because of the rot in our system due to corruption and sleaze politics, are hardly an ad for Lebanese wanting to create businesses here.
Surely, we have a lot to learn from Turkey. Built on the weak remnants of the Ottoman Empire, this country has placed itself in a position of strength, built important alliances, and promoted a culture of change and sustainable development. Lebanon would do well to copy, in spirit, the approach of Turkey in prioritizing the economy over politics, in promoting private enterprise, and in embracing globalization by acting in the national interest in forging a strong working relationship with the industrialized world and its institutions.
Turkey has come a long way from its depiction of a dictatorship with little economic hope simply by adhering to the global economic textbook and by strengthening its institutions. Turkey has quadrupled its revenues from tourism in ten years as well as becoming one of the top Mediterranean destinations by assisting tourist projects and emphasizing a clean tourism environment.
In its bid to enter the European process, Turkey has had to make many tough concessions in order to fit in. When we hear of Saudi Arabia entering the WTO, one wonders how ready is Lebanon? As Turkey integrates an economic bloc, it has had to shape up.
We can only hope that Lebanon, driven by a desire to enter any kind of economic entity, will make significant changes to its modus vivendi, both economically and politically. It would therefore be beneficial to shoot for a similar path to Turkey, especially by realizing that deep structural and institutional change is the only way out. A strong banking sector, a piece meal tourism plan, and lip service to demands for change will not cut it this time around.