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Tuesday, August 24, 1999 Published at 19:40 GMT 20:40 UK

Business: The Economy

Turkey's rocky road to recovery

Up in smoke: the Tupras refinery was due to be sold off

By BBC News Online's Dominic Casciani

The costs of rebuilding Turkey after its devastating earthquake could be 16 times higher than the reconstruction bill for Kosovo, according to the country's business leaders.

Turkey Earthquake
Tusiad, one of Turkey's leading business organisations, has published the first estimate of the costs of the devastation, saying that the country needs at least $20bn of aid to stage a recovery - 10% of gross national product.

The World Bank estimates that the reconstruction of Kosovo following the conflict earlier this year will cost a mere $1.23bn by comparison.

"The disaster will inevitably affect the Turkish economy which had just started to recover from a severe recession," said Tusiad.

The BBC's Pam O'Toole looks at the economic problems Turkey now faces
"Although no major damage has occurred to industrial plant, production has been interrupted because of the vast human loss."

Warning that the economy could now be losing $300m a day, the organisation appealed to the international community to swiftly come to Turkey's aid.

Rapid recovery forecast

However, the long-term damage to the economy should not be too serious, according to the international credit rating agency, Fitch.

It said that, while Turkey could see a 2% fall in gross national product this year as a result of the quake, it should make a rapid recovery.

A spokesman for Fitch said: "There will undoubtedly be significant short-term effects on output, the fiscal position and the balance of payments.

"However, these seem unlikely to be sharp enough or prolonged enough to affect Turkey's medium-term economic prospects or its creditworthiness."

The agency said there could even be an economic "silver lining" for Turkey, in the form of international aid and a boost in demand for new buildings, infrastructure and consumer goods from next year.


But there is no escaping - or underestimating - the short-term effects. The area of north-west Turkey struck by last week's earthquake is the country's industrial heartland.

[ image:  ]
According to national statistics, it is responsible for at least 40% of national production and at least half of all exports.

The most critical issue for the government is how it will repair the infrastructure of a region which provides 55% of its total tax revenues.

Fugen Camlidere of the Istanbul Chamber of Commerce told BBC News Online that while many large manufacturers had survived the earthquake, they had to act to save their suppliers.

[ image:  ]
"The side industries which supply parts to the automotive and engineering industries have been badly hit," she said.

"The motorway between Istanbul and Bolu and roads passing north to south of the Izmit Gulf are damaged.

"Communications, sewage, water and electricity systems have been hit. It will take months to repair.

"But business leaders are busy providing assistance to those stricken by the disaster. Only in a week or so will ideas and decisions emerge."

The question of privatisation

The most obvious symbol of the economic devastation has been the destruction of the country's largest oil refinery at Izmit, a loss which has put paid to plans to make it the $1bn centre of next year's privatisation programme.

"Some of the enterprises that were slated for privatisation will have to be delayed until there is reconstruction to the actual plant," said Amer Bisat of the US investment firm Salomon Smith Barney.

"There is, however, the question about the privatisation stance itself.

"Will the government have the political stamina to push through what is obviously a politically difficult decision to diversify state-owned assets at a time of national emergency?

"That is still an open question."

[ image: Toppled: Infrastructure has been destroyed in places]
Toppled: Infrastructure has been destroyed in places
Despite some positive economic signs, the Turkish economy has struggled with a deficit of around $20bn and an annual inflation rate standing at 50%.

Ankara recently secured a $5bn International Monetary Fund loan, dependent on economic restructuring and radical social security and pension changes.

But the World Bank, which has contributed aid to two previous Turkish earthquakes, has said that it is ready to forward $220m in loans.

[ image:  ]
Some economists are suggesting that the earthquake will actually provide the opportunity the government needs to reform taxation and welfare.

Fugen Camlidere of the ICC said: "The government will spend extra funds to cover the damage.

"But if lines of credit and concessionary facilities are extended, prices will be contained.

"The IMF sponsored reforms should still go ahead. They will help to provide sustainable growth and a competitive edge.

"The reforms are now even more vital today."


One idea being floated is the issue of one-off "earthquake bonds" but government signals appear confused.

One spokesman reportedly described the economic damage as "beyond any tragic event in the history of Turkey" while finance minister Recep Onal said that he did not believe the disaster would be an excessive burden.

"It may take some time to heal the wounds," he said.

"But as far as our macro-economic balances are concerned, any retrogression is out of the question.

"Our major loss is the valuable loss of human lives," Mr Onal added. "That will take time to replace, but we will succeed."

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