Slowdown in Turkish economy alarms its leaders

For the last few years the Turkish economy has been running strong on a free market system. But, of late, the pace has slowed. Inflation is up, exports to the Arabs are dipping, and the strong dollar is not helping things. These obstacles, plus a recent decline of the country's key economic indicators, have begun to stir some debate over the free market policies introduced three years ago.

Administration officials recognize that the Turkish economy is again facing serious difficulties. Businessmen and economists are deeply worried about the current situation.

This is in sharp contrast with the prevailing optimism of the last couple of years. After nearing collapse, the economy began to show signs of recovery in the late 1970s. It took a decided turn for the better after an economic stabilization program was set up in January 1980, based on the free market system. Within two years high inflation was checked, exports rose, the balance-of-payment situation improved, and the economic growth rate marked considerable progress. Thus Turkey started to regain its international credibility at a time when other developing nations were losing theirs.

However, the promising trend has changed course in recent months and the new difficulties have alarmed officials.

''The situation is not very bad, but the fact is that our recovery is now lagging behind,'' said Yildirim Akturk, undersecretary of the state planning organization. He holds that fresh measures are needed to cure the problem.

Akturk had earlier this year predicted ''a performance beyond the targets'' set by his organization. An economic growth rate of 4.8 percent was anticipated for 1983. However, figures from the first six months would indicate a growth rate of 2.9 percent. Inflation was to be reduced to 20 percent this year, but now even administration officials admit that it will not go below 30 percent. Exports for the current year were expected to reach $7 billion, but it is now predicted that they will not exceed $6 billion.

2 Turkish money, subject to daily exchange-rate adjustments, has lost 22 percent of its value since the beginning of this year. Under the present rate, per capita income in Turkey, which was $1,300 three years ago, is now only $900.

The economy has been further beset by the chronic problems of unemployment (now at 20 percent of the work force), energy shortage (causing frequent power cuts and fuel price hikes), and a decline in production (including in agriculture).

One of the major effects of the stagnation has been the collapse or near-collapse of some big private companies. Three banks and three large industrial firms have recently come to the verge of bankruptcy, and the state intervened.

The minister of finance, A. B. Kafaoglu, has defended his firm-rescuing operation. He argues that leaving major companies to their own fate would have an adverse effect on the economy, reduce production, and increase unemployment.

This has been contested by many experts and businessmen, including Turgut Ozal, the man who introduced the 1980 stabilization program and who now leader of the Motherland Party. Their argument is that these companies were in trouble mainly due to mismanagement and that the state should not waste its financial resources in trying to save them. They also see this attitude as a protectionist step, and therefore as a deviation of the free market system introduced by Ozal.

The controversy has put the government in an embarrassing position, and recently a five-member committee was set up to review the firm-rescuing policy. The committee is expected to be opposed to granting state subsidies to any collapsing firm and aid only those essential to the economy.

The problem of the struggling companies, flung together with the decline in growth, production, and exports, as well as new inflationary pressures are the focus of a debate about the merits and wrongs of the free-market policy.

Ozal and liberal economists insist that the economic program should be continued. They blame some of the present difficulties on what they see as protectionist or interventionist measures taken by the present administration (such as reduction of interest rates on deposits and a curb on export credits). They say that it is too easy to attribute the difficulties to the free-market economy.

Administration officials say there is no question of abandoning the free market system and recent measures should not be taken as a trend toward protectionism. They also recall that some of the recent difficulties in the Turkish economy are the result of ''foreign factors,'' such as the rise of the dollar and the drop in exports to some Arab countries which themselves are in difficulty.

''Programs are developed, not changed at every stumbling block,'' said an economist.

However, experts believe that Turkey has to undertake major structural changes (such as the reorganization of the state enterprises) to restore the economy. One of the architects of the 1980 recovery program, Hasan C. Guzel said , ''Those measures were intended to extinguish the fire, and they produced positive results. But the program should not be viewed as a magic wand that would solve all the problems, all the time.''