H.E. President Abdullah Gül’s Address At The Working Breakfast Hosted By Merrill Lynch

Distinguished Guests,

Ladies and Gentlemen, 

It is a great pleasure to come together with such a distinguished group from the financial institutions which drive the US economy.  

At the outset, I would like to thank our host, the able and hardworking team of Merrill Lynch, for organizing this wonderful event.  

In this address, I will try briefly to set the tone for the enhanced partnership we seek with the American business community in the field of economics and finance. We will hopefully exchange views in greater detail during the question and answer session.  

Distinguished Guests, 

Let me begin by underlining how deeply we value the Turkish-American alliance. Indeed, this relationship, which President Obama calls a “model partnership,” is one of the pillars of Turkey’s foreign policy.  

This partnership rests on shared values of democracy, human rights, the free market, and, of course, shared interests and mutual benefits.  

At this time of global economic turmoil and uncertainty, our partnership has grown in importance and scope. Today, America is our strongest partner in addressing many global issues from Middle Eastern stability to the global economic downturn.  

In terms of the scope and intensity of diplomatic contact, what we have is indeed unique. 

But the engine of bilateral ties is no longer simply Turkey-US strategic, diplomatic, or security cooperation. To keep this relationship as strong as ever, we need to deepen and diversify the areas of cooperation. 

A quick look at the statistics is self-explanatory.  

In 2012, the trade volume between the US and Turkey surpassed 20 billion dollars. Nevertheless, despite being our greatest ally, the US is not our biggest trading partner.             

Regarding investments, American companies have invested 8.4 billion dollars in Turkey in the last decade. The US now stands as the third-largest investor in Turkey after the Netherlands and Austria. Here too, there is room for more. 

Financial sector integration has been steady, but is still insufficient. In terms of tourism, neither of our countries is currently among the most frequent destinations for our travellers.  

I am sure that you will agree with me when I say that the current economic, commercial, and investment relations between our two countries are only operating at a small fraction of their actual potential.  

Indeed, the disparity between Turkish-US strategic relations and economic relations is striking.  

For instance, Turkey’s trade volume with Russia, our Cold War rival, exceeds 40 billion dollars. This figure alone demonstrates the imperative to upgrade our economic relations to a level compatible with the spirit of model partnership. 

The potential is absolutely huge.  

The US is the largest economy in the world. Turkey on the other hand is a fast developing economy and a booming industrial outlet. It ranks 17^th in terms of economic size globally, and 6^th in Europe.  

We have every reason to create incentives for American and Turkish companies in each other’s countries.  

Our priorities are clear. A mutual investment-friendly atmosphere is a must. So is removing barriers to bilateral trade.  

It is not just in Turkey and America that our companies can work together. Joint ventures in third countries are an immense asset as well.  

Turkey could be a staging area from which you could reach out to markets in Central Asia, the Balkans, the Middle East, and North Africa.  

Opportunities are abundant; among them, finance, banking, infrastructure, energy, IT, and contracting.  

And we have reaped the benefits of our geography in the past. The Baku-Tbilisi-Ceyhan oil and Baku-Tbilisi-Erzurum gas pipelines, the dream projects of the last century, prove what we can achieve.  

Ladies and Gentlemen, 

Let me state a few more reasons why you should do business in Turkey.  

Turkey is no longer the country you knew ten to twelve years ago. It has undergone a dramatic process of reform over the last decade.  

Its key features are now political and macroeconomic stability as well as low risk premium. EU accession negotiations and reforms are still under way.  

A young, dynamic, and well-trained workforce is the impetus for stable growth. A vibrant and competitive business community as well as a diversified consumer market make Turkey a centre of global attraction. 

Also adding value to Turkey is a banking and financial sector which has proved resilient in the face of global economic crisis. This is because we learned from our mistakes.  

In 2001, we suffered one of the deepest economic crises in our modern history.  

The lessons we drew were fiscal discipline, sound economic and monetary policy, and robust legal arrangements. All are now in place.  

True, there is a current account deficit. But this is a growing manufacturing economy that needs intermediate goods for production.

The vibrancy of the domestic market also absorbs the risks of stagnation and overheating.  

As a result, the Turkish economy is proceeding along a steady and cautious route. It is expected that Turkey will be the fastest growing OECD member between 2011 and 2017, with an average annual growth rate of 6.7%. 

The Turkish banking sector also remains robust, with an average 17% capital adequacy ratio.  

Bear in mind that this is now an open trading economy. In the past decade, Turkey has become a globally networked country.  

Turkish companies and exporters now operate in distant markets such as Africa, Latin America, and Asia. In 2012, total foreign trade volume was close to 400 billion dollars. 

Earlier, I briefly mentioned the changes we made in the legal structure. In the past twelve months, we have also been able to create some remarkable new legislation; a brand new commercial law, a code of obligations, a capital markets law, and a brand new law on non-bank financial businesses like leasing, factoring and also consumer financing companies.  

Let me clarify. There is no difference between a foreign investor and a Turkish entrepreneur in terms of legal rights and liabilities. A foreigner can set up and dissolve a company just as easily as a Turkish businessman. The aim is simply to facilitate the business environment for all entrepreneurs, irrespective of nationality.  

Most importantly, we have created an Investment Support and Promotion Agency annexed to the Office of Prime Minister. Give them a call or drop them an email. Let them contact you and guide you through this streamlined process.  

In the meantime, we wish to transform Istanbul into a truly international financial centre. Crucial steps are taken in this direction. The World Bank’s International Finance Corporation has launched its operational centre in Istanbul. This is the first ever such office outside Washington. The European Bank of Development and Reconstruction has offices both in Istanbul and Ankara. The Islamic Development Bank has recently opened an office in Ankara. The World Bank’s Global Islamic Finance Centre will soon follow suit. 

With all this experience pouring in, today the Istanbul Stock Exchange (ISE) has a market value of 200 billion US dollars. And the figure is still rising.  

Dear Guests, 

As you consider the Turkish economy, I am sure you are all wondering what impact the wave of protests in early summer and the wider regional turmoil has had.  

Well, it is hard to quantify. But one thing is clear. The high tide of these events coincided with a “risk-off period” in the financial markets.  

Remember the remarks by Chairman of the FED in May about the possibility of a shift in US monetary policy? This triggered sell-offs in almost every quarter of the world. Turkey was no exception.  

Yet, the amount of outflow was very limited. It was only a small percentage of GDP, in Turkey as elsewhere. What happened was not a shrinking of markets but a re-pricing of assets. 

In gross numbers, it was about 1 billion dollars from the stock market in Turkey and another 1 billion dollars from government bond market. But even after re-pricing, Turkey has 70 billion dollars in the former and another 70 billion in the latter.  

Turkish economists calculate that two thirds of outflows stemmed from the global markets volatility, and only one third out of the domestic circumstances. That’s why the stock, bond and foreign exchange markets picked up in a few weeks’ time. 

Does this mean the volatility is over? I would answer this question with another; is it completely over anywhere? When things will stabilize, nobody knows.  

What we do know is that the fiscal policy of the Turkish government, the debt and diversity of the real sector, and the strong banking and financial system in Turkey are all crucial assets against global fluctuations. You can add to that the low political risk.  

The macro indicators and fundamentals of Turkish economy are strong and healthy. We remain among the least affected by the global economic downturn. While most national economies in Europe shrank, the Turkish economy grew by around 8.8 to 9.2 % in 2010 and 2011, outperformed only by China. 

Last year, in the midst of many regional and global challenges, we maintained a rather humble growth rate of 2.2 percent. This was thanks to the prudent policies of the government, designed to avoid overheating in the Turkish economy. More importantly, this growth has translated into 5 million new jobs since 2009. These numbers speak for themselves.  

Ladies and Gentlemen, 

Today, Turkey is transforming into one of the world’s leading investment hubs. Areas in which substantial transformations are taking place include successful privatizations, promotion of profit transfer, abolishment of bureaucratic barriers, and amelioration of the tax system. We are confident that things are on the right track.  

Let me conclude by emphasising once again that we should enrich the Turkish-American alliance by extending our partnership in business and economy in the years to come.  

We should broaden and deepen our ties as befits two friends and allies with a long, common history.  

Our exemplary partnership can and should make a difference for the better in expanding peace, prosperity, and stability in this century.  

I am convinced that Turkish-US cooperation will not only remain relevant, but also become an invaluable asset for all those working towards a brighter and more peaceful tomorrow. You all have an important role to play in making that tomorrow happen.  

Thank you.