NATIONAL INTELLIGENCE DAILY

• Document Type: FOIA
• Collection: FOIA Collection
• Document Number (FOIA) /ESDN (CREST): 05903578
• Release Decision: RIPPUB
• Original Classification: U
• Document Page Count: 4
• Document Creation Date: May 30, 2024
• Document Release Date: April 2, 2024
• Case Number: F-2012-01748
• Publication Date: September 29, 1980

Approved for Release: 2024/03/18 C05903578
Director of
Central
Intelligence
(b)(3)
National Intelligence Daily
Monday
*ember 1980
P. A
Top
cri nun on lin tx
29 September 1980
Copy 220
(b)(3)
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SPECIAL ANALYSIS
TURKEY: Economic Outlook
Turkey's economic outlook should improve in the near term be-
cause of the military takeover but will continue to hinge on firm
implementation of the stabilization program, backed by continued
foreign aid. Even with tight adherence to such austere economic
policies, however, Turkey will require at best two years before it
can get by without emergency aid. The balance-of-payment deficit
is too large to overcome quickly.
Soon after the coup, the military announced that
Turkey would continue former Prime Minister Demirel's
stabilization program and that Turkey would honor all
its foreign economic commitments. The military leaders
realize that the struggling economy is being kept afloat
by foreign aid, much of which is contingent on Turkey's
continuing to meet policy performance guidelines laid
down by the International Monetary Fund.
The new government probably will continue Demirel's
key innovation of frequent small devaluations to maintain
a competitive lira. In addition, Ankara has ordered
striking workers back to their jobs and may implement
by decree the tax reform that was bogged down in parlia-
ment. The military regime can put more pressure on
state firms to become more self-sufficient through price
increases and personnel reductions.
Demirel's Stabilization Program
The generals will carry out the conservative, market-
oriented stabilization program more rigorously than
Demirel was able to do. The program, which was intro-
duced on 24 January, represented a sharp break with
economic policy of recent years.
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The centerpiece of the program was a major deval-
uation of the lira. Other important elements included
a sharp cut in subsidies to State Economic Enterprises
and a concomitant reduction of the overall budget def-
icit; removal of price and interest rate controls; slower
monetary growth; increased export incentives; tax
reform; and opening the economy to private foreign
investment.
Initial Encouraging Signs
The program evidently was beginning to work.
Demirells initial devaluation of the lira on 24 January
was as large as the successful devaluation in 1970 and
much 1arer than the failed devaluations in 1978 and
1979.
The devaluation put the lira at an economically
realistic level for the first time since the oil price
hikes in 1973. Furthermore, that position has been
maintained for the past six months by a series of small
devaluations, something no previous government had been
willing to do.
The balance of payments has improved since the
program began in January. Worker remittances rose
sharply--up 98 percent comparing the six-month period
following the devaluation with the previous six-month
period--to an annual rate of $2 billion.
Seasonally adjusted exports jumped 22 percent in
value in the first quarter, compared to fourth quarter
1979. They rose an additional 14 percent during the
second quarter to an annual rate of $2.6 billion. Imports
declined 3 percent during the first quarter, then rose
only 1 percent during the second to an annual rate of
$5.5 billion.
Shortages for the most part have been alleviated
due to the sizable amounts of foreign aid and to higher
prices bringing supply and demand back into balance.
Government subsidies to State Economic Enterprises are
lower andresult, the budget deficit has been
reduced.
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29 September 1980
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The stabilization program has had its most visible
impact on the inflation rate. Immediately after its
introduction, prices soared because controls were re-
moved and state sector prices were increased to levels
in line with costs. Since April both consumer and
wholesale prices have been rising at annual rates of
around 40 percent--about e pace recorded during
the latter part of 1979.
The program has not done well in getting industrial
production back on track� largely because of tight
credit and labor disruptions. The industrial slump,
a rapidly growing labor force, and the pressure on state
enterprises to lay off surplus workers means that unem-
ployment will continue to increase in the short term.
Officially the unemployment rate is now 15 percent;
unofficial estimates place it at 20 to 25' percent.
Outlook
If the stabilization program is maintained, the
economy should continue its slow improvement. The road
ahead, however, is long and uncertain. Disruption of
Iranian and Iraqi oil supplies--on which Turkey is
heavirly_de7endent--could nip economic recovery in the
bud.
Assuming the recovery program is not derailed by
a cutoff of oil, Turkey still will need additional infusions
of foreign aid next spring. Turkey has enough aid
pledges to cover its financial gap in 1980, and donors
apparently will honor their commitments. By about
March, however, Turkey will need new aid pledges for
1981--particularly from the members of the Or anization
for Economic Cooperation and Development.
Prospects for fresh inflows of private capital re-
main poor. Private banks will remain reluctant to grant
new loans or to reschedule--for a second time--Turkey's
outstanding debts. The banks already feel overextended
in Turkey and two recent studies of international credit-
hiness both ranked Ankara in the bottom 10 percent.
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