Turkey achieves low overall compliance with international standards and codes, with a score of 38.3 out of 100 in our Standards Compliance Index. Turkey's compliance in the areas of macroeconomic fundamentals is generally high, and in the context of accession negotiations with the European Union (EU), Turkey has enacted a new law aimed at strengthening its fiscal transparency. However, Turkey's compliance in the areas of market infrastructure and financial supervision appears weak. Legislative reforms have been enacted in recent years to improve its corporate governance structure, insolvency framework, and anti-money laundering regime, but implementation remains a problem. Turkey's accounting practices and insurance regulation are not compatible with European Union rules and international norms.

Macroeconomic Policy and Data Transparency

Turkey has been a subscriber to the International Monetary Fund's (IMF) Special Data Dissemination Standard (SDDS) since August 9, 1996 and started posting its metadata on the IMF's Dissemination Standards Bulletin Board on September 16, 1996. According to a 2002 report by the IMF, Turkey has been in observance of Advance Release Calendars, since July 20, 2001. Since Turkey came into observance of the SDDS, its dissemination practices have been in observance with the SDDS's requirements, and the dissemination of data on the National Summary Data Page has been timely. Based on the most recent (as of 2007) information provided on the IMF's SDDS website, Turkey meets SDDS specifications for the coverage, periodicity, and timeliness of data for all but one data category - analytical accounts of the central bank, for which it has availed of the flexibility option. According to the IMF's 2004 Article IV Consultation report Turkey's statistical base is adequate for effective surveillance, however, according to the report the coverage and timeliness of fiscal data should be improved. Furthermore, the terms and conditions relating to the confidentiality of individually identifiable information is not clearly reported for all data categories. More »

Oxford Analytica (OA) in its yearly Monetary Policy Transparency update maintains it rating of Turkey's compliance with the International Monetary Fund's Code of Good Practices on Transparency in Monetary Policy as "Compliance in Progress." The Central Bank of Turkey (CBT) has sustained its high standards of transparency in monetary policy particularly regarding the publication of information on policy implementation. The openness of the policy-making process continues to improve. Implicit inflation targeting is in place and formal targeting began in January 2006. Overall, the CBT is highly transparent. It produces comprehensive data and information on its activities and complies with the IMF Special Data Dissemination Standard (SDDS). The controversies over the replacement of its governor negatively affected perceptions on the independence of the CBT in 2006, but was eventually resolved with the appointment of the highly regarded Durmus Yilmaz. The financial market turbulences in the Summer of 2006 were settled through a series of interest rate hikes together with a subsequent 200 basis point increase in the CBT's lending-borrowing spread to reduce incentives to short the lira. More »

Oxford Analytica (OA), in its 2005 report on Fiscal Transparency in Turkey, rated Turkey's compliance with the International Monetary Fund (IMF) 'Code of Good Practices on Transparency in Fiscal Policy' as "Enacted". In the 2006 Report on the Observance of Standards and Codes (ROSC) for Fiscal Transparency, the International Monetary Fund (IMF) noted that since the 2002 update, Turkey has continued to make progress toward meeting the requirements of the fiscal transparency code, in particular through a substantial overhaul of the legal system. The adoption, in December 2003, of the Public Financial Management and Control (PFMC) Law was designed to provide the necessary framework for further reforms. Its implementation is scheduled for completion in 2006. In spite of the progress made, further effort is required before Turkey will fully meet the requirements of the Code. Implementation of reforms can be hampered by uncertainty in the legislative environment. For example, numerous amendments to the PFMCL and other laws are now with Parliament, and the absence of hierarchy in Turkey's legal system exacerbates this uncertainty. In addition, a law approved in 2005 (the "Omnibus Law") allows the government to sidestep budget discipline in various ways, although under certain criteria -- for example by writing off debts of some public institutions. Thus there are increasing doubts about the resolve of the government to continue to increase fiscal accountability and transparency. More »

Institutional and market infrastructure

Since 2002, Turkey has had continuous efforts to modernize its Execution and Bankruptcy Act No. 2004 of 1932 (EBA 1932). With the support of a World Bank loan intended to help modernize the corporate insolvency regime, amendments to the EBA 1932 were enacted to introduce pre-packaged options and to complement earlier amendments enacted in July 2003. Furthermore, on February 12, 2004 the Grand National Assembly of Turkey passed Law No. 5092/2004, which introduces a set of innovative provisions on pre packaged corporate restructuring by adding a new chapter entitled "Restructuring of Corporations and Cooperatives via Reconciliation" to the EBA 1932. The new procedure was developed by the Ministry of Justice with the technical assistance of the World Bank, following the recommendations contained in the World Bank's Insolvency and Creditor Rights Systems Report on the Observance of Standards and Codes (ROSC). The Ministry of Justice and the legal experts of the World Bank focused on the needs of the corporate and financial sector and collaborated to develop a new law that complies with international best practices and yet addresses the unique local circumstances. More »

According to the 2006 Turkey Progress Report by the European Commission (EC), some progress can be reported in the area of accounting. The Turkish Accounting Standards Board (TMSK) has so far adopted almost all International Accounting Standards (IASs) and International Financial Reporting Standards (IFRSs). However, these are not legally binding nor generally applied by Turkish companies. Turkey does not have a general purpose accounting framework that corresponds to internationally accepted accounting principles. The regulatory and institutional arrangements for financial reporting and accounting in Turkey are fragmented, with multiple agencies each administrating their own regimes. The Banking Regulatory and Supervisory Agency (BDDK) and the General Directorate of Insurance (GDI) set financial reporting standards for banks and insurance companies, respectively (including publicly held companies), while the Capital Markets Board (CMB) sets financial reporting standards for all other publicly held companies. The CMB issued Communique XI-25 incorporating almost all IFRSs that were effective in 2003. However, the CMB's IFRS-based standards are not equivalent to IFRSs because of its translation policy and the cut-off date of 2003. There are significant differences between IFRSs and the BDDK's standards for banks. The GDI has not yet adopted IFRS-based standards for all insurance companies, although it has issued a notice requiring listed insurance companies to publish financial statements in accordance with the CMB's IFRS-based standards. However, proposed initiatives to centralize the accounting standard setting process have the potential to eliminate inconsistencies in the financial reporting framework and enhance the efficiency of the standard setting process. If the proposed amendments to the Turkish Commercial Code (TCC 1956) are enacted, the TCC 1956 will provide that the Turkish Accounting Standards (TASs) issued by the TMSK will become the only source of general purpose accounting standards. More »

According to a 2006 Organization for Economic Co-Operation and Development (OECD) report, corporate governance is improving in Turkey. Turkey has a strong regulatory framework for corporate governance. Disclosure to the market by listed companies is improving, and international standards for accounting and auditing are being introduced. However, some key issues, including the potential for unfair treatment of minority shareholders, need to be tackled if Turkish firms are to take full advantage of opportunities to grow in coming years. Moreover, the OECD urges Turkey to give greater scope to institutional investors in the exercise of their rights as shareholders. Finally, the report stresses the need for supervisory, regulatory and enforcement authorities to have the power, integrity and resources to act professionally and objectively. Independent regulators like the Capital Markets Board (CMB) need stable funding, freedom to decide how they spend their budget and clear support from the government. More »

According to the 2006 Turkey Progress Report by the European Commission (EC), limited progress was made in the area of auditing. In June 2006, the Capital Markets Board (CMB) issued the Communiqué on Independent Auditing Standards in the capital market, introducing a translation of the International Standards on Auditing (ISAs) applicable to audits of CMB-regulated entities for financial years ending on or after December 31, 2006. The Banking Regulation and Supervisory Agency (BDDK) with respect to banks and the General Directorate of Insurance (GDI) with respect to insurance companies adopted implementing legislation on audit principles. The CMB, GDI and BDDK require the accounts of, respectively, listed companies, insurance companies and banks to be audited. However, there is no general purpose framework consistent with internationally accepted auditing practices, and the regulatory framework for the auditing profession remains to be significantly upgraded. Although the introduction of comprehensive ISA-based standards is a welcome reform, some issues remain. First, these standards will not apply in respect of all publicly held companies, unless the BDDK and GDI adopt them. Second, since the CMB did not employ an International Federation of Accountants (IFAC)-approved translation process, some uncertainty exists as to whether the CMB's standards are fully equivalent to ISAs. More »

Based on the findings of a 2007 Financial Action Task Force (FATF) mutual evaluation of Turkey's anti-money laundering (AML) and combating the financing of terrorism (CFT) regime, overall, Turkey's legal requirements to combat money laundering (ML) and terrorist financing (TF) are generally comprehensive. The legislative renewal program undertaken by the Turkish authorities has strengthened the AML/CFT system though, due to the recent implementation of a number of key laws, many elements of the system's effectiveness have not yet been tested. A new money laundering offense was introduced in June 2005, and the stand-alone terrorist financing offense was introduced in July 2006. While the scope of the new ML offense is broader than its predecessor, and it may produce better results in the future, the penalties provided for ML are low when compared to similar types of offenses. No prosecutions have yet been brought using the new ML offense. The new TF offense of July 2006 is generally broad, although it does not completely implement the 1999 United Nations (UN) Convention on the Suppression of the Financing of Terrorism. While the number of suspicious transaction reports (STRs) submitted has increased substantially, the level of reporting remains low when the size and nature of Turkey's financial sector is considered. The confiscation framework in Turkey appears to meet most of the standards, but has not yet produced substantial results. The Turkish financial intelligence unit (FIU), (Mali Suçlan Arastirma Kurulu, or MASAK), is the focal point for Turkish AML/CFT efforts and it is generally effective in its functions. However, one major drawback identified by the FATF report is that Turkey does not comply with the FATF's customer due diligence (CDD) requirements for financial institutions and designated non-financial Business and Professions (DNFBPs). More »

In Turkey, interbank payments are processed through the following systems: Turkish Interbank Clearing System (TIC-RTGS); the Central Bank of the Republic of Turkey (CBRT) giro system; interbank clearing houses (ICHs); and the Bank Card Centre (BCC). According to the Central Bank of the Republic of Turkey - Türkiye Cumhuríyet Merkez Bankasi (CBRT), the Turkish Interbank Clearing - Electronic Funds Transfer System (TIC-RTGS) is the country's real-time gross settlement system and the CBRT, in its 2006 Financial Stability report claims that as a systemically important payment system, TIC-RTGS mostly complies with the Core Principles for Systemically Important Payment Systems (CPSIPS). However, there is no publicly available information as to the compliance of the other interbank payments systems with the CPSIPS. The law of April 2001 amending the Central Bank law enables the CBRT to regulate the volume and the circulation of the Turkish Lira, to establish payment, securities transfer and settlement systems. The law also introduces regulations ensuring uninterrupted operations and supervision of existing or future systems. To attain full membership of the European Union (EU) Turkey's TIC-RTGS will be required to fully comply with the Trans European Automated Real Time Gross Settlement Express Transfer System (TARGET). More »

Financial Regulation and Supervision

Following the financial crisis of 2000 and the establishment of the Banking Regulation and Supervision Agency - Bankacilic Düzenleme ve Denetleme Kurumu (BRSA) in the same year, Turkey has taken significant steps to reform its banking sector. According to a 2006 International Monetary Fund (IMF) report on the review of Turkey, Turkey has continued to make progress in improving banking supervision. Organizational changes at the BRSA, including the merger of onsite and offsite supervision, should help modernize supervisory practices in Turkey. To ensure early compliance with Basel Core Principles (BCPs), the BRSA indicated that it would soon complete drafting of supporting regulations for the banking law. To build on progress in banking supervision, the BRSA indicated that bank monitoring would be intensified in light of rapid credit growth and recent financial market volatility. Progress has also been made in the consolidation of supervisory functions. The privatization of state banks is progressing as planned and the authorities planned to announce a detailed privatization strategy and timetable to phase out state banks' privileges over public agencies' deposits. The Turkish banking system has posted a strong recovery since the 2001 financial crisis. Capital adequacy ratios are high and now compare favorably to those of other emerging markets, Non-performing loans (NPL) are down sharply, and profitability has held up. Taken together with moves towards European Union (EU) accession and the potential for further rapid growth and deeper financial intermediation, these developments have improved the risk profile of the Turkish banking sector. Bank oversight needs to be intensified, however, in light of heightened financial market volatility. More »

The Capital Markets Board (CMB) has been an ordinary member of the International Organization of Securities Commissions (IOSCO) since 1988. It is now also a member of the IOSCO Executive Committee. IOSCO membership does not require a formal declaration of adoption of its principles of effective securities regulation. According to the CMB, all the capital market rules and regulations that are being adopted are in harmony with the European Union's directives and IOSCO principles. The CMB is the sole regulatory and supervisory authority of the securities market in Turkey. The CMB has extensive standard-setting and supervisory powers as well as extensive investigation powers. Some questions arise, however, about the adequacy of its enforcement powers. Some threats to the CMB's ability to undertake regulatory measures and take and enforce decisions free from political or commercial interference also exist. Turkish authorities are pursuing certain initiatives designed to result in a clearer articulation of the different authorities' respective responsibilities, improve cooperation, and contribute to greater consistency in the interpretation and enforcement of standards. However, there is no publicly available information regarding Turkey's compliance with the IOSCO Objectives and Principles of Securities Regulation. More »

According to a 2004 publication by the European Commission (EC), insurance supervision in Turkey at the time of the assessment was characterized by an imperfect regulatory framework that caused ineffective enforcement of legislation and monitoring rules. It was recommended that framework legislation, determining the main principles for the insurance sector, be adopted urgently and the regulatory and supervisory authorities be re-structured and substantially strengthened to meet the need for proper implementation of the legislation once it has been aligned. In the subsequent 2006 Turkey Progress Report, the EC states that some progress can be reported in the area of insurance and supplementary pensions. A new solvency regime was adopted for insurance, reinsurance, and occupational pension companies. However, the Insurance Supervision Law is still outdated as several provisions have been annulled by court decisions. Moreover, Turkey has no specific legislation on the supervision of insurance groups, consolidated insurance accounting, or reinsurance. The Association of the Insurance and Reinsurance Companies of Turkey (TSRSB) prepared a Draft Law regarding the Regulation and Supervision of Insurance Activities taking into consideration the directives of the European Union relating to insurance as well as the framework of globally recognized basic insurance principles. The views of the TSRSB with respect to the draft were shared with the Undersecretariat of Treasury on March 20, 2006, and the text of the Law was submitted to the Presidency of the Turkish Grand National Assembly on May 29, 2006. More »

Legend:

Credit Ratings

Moody's Ba3/Stable

Fitch BB-/Stable

Standard & Poor's BB/Negative

Macroeconomic Data

2007 GDP (Current Prices): 663.4 billion USD (IMF)

2007 GDP (Per Capita): 9,629 USD (IMF)

2008 GDP (Growth Forecast): 3.9% (IMF)

2008 Inflation (CPI): 7.5% (IMF)

2007 Unemployment: 9.7% (CIA)

2006 Foreign Direct Investment

FDI (Inward): 20.1 billion USD (UNCTAD)

FDI (Outward): 0.9 billion USD (UNCTAD)

2006 Official Development Assistance

ODA (Received): 570 million USD (OECD)

ODA (Disbursed): N/A million USD (OECD)