Basic HTML Version
19
PRESENTATION
Summary Report of the Board of Directors
Dear Esteemed Shareholders,
The world economy entered 2011 with uncertainty stemming from worries in the Euro Area. The high government
debt levels and acute banking sector difficulties in Euro Area countries loomed large throughout the year; even the
possibility of a breakup of the European Monetary Union was frequently mentioned in the discussions that ensued.
This situation raised borrowing costs significantly, which in turn fueled concerns about the manageability of sovereign
debt in the most troubled economies, further aggravating the crisis. Even as European governments introduced a
variety of measures to overcome the debt crisis, the solutions adopted by the European Central Bank and monetary
and fiscal authorities fell short of calming the markets.
As a result of these developments, growth prospects in developed economies, the group most affected by the global
crisis, deteriorated considerably and rising commodity prices further increased inflation worries. In the wake of the
Euro Area sovereign debt crisis, international credit rating agencies downgraded the ratings of numerous countries and
financial services corporations adversely impacted by the crisis.
Although developments in the world’s largest economy, the US, were less disrupting to the markets than those in the
Euro Area, the international credit rating agency Standard&Poor’s (S&P) lowered the country’s long-term credit rating
from AAA to AA, for the first time in the nation’s history. This downgrade had a very short-lived effect on the markets;
however, US economic growth remained weaker than expected despite its relatively positive outlook. In contrast, and
despite these rising risk factors and the worldwide slowdown, emerging markets continued their strong economic
growth performance.
The IMF expects the world economy, which grew 5.2% the year earlier, to close 2011 with a growth rate of 3.8%.
Economically advanced countries are expected to grow 1.6% while developing economies are forecast to grow 6.2%
in 2011, down from their 2010 growth rates of 3.2% and 7.3%, respectively.
Even as the world economy grappled with the latest crisis, Turkey presented a rather positive outlook, with continued
robust economic growth, a strengthening labor market and an improving budget deficit. After closing 2010 with 9%
growth, Turkish economy grew 8.5% in 2011. Rapid economic growth led to an improvement in the labor market, with
unemployment falling from 11.4% as of end-2010 to 9.8% at the close of 2011. However, the economy’s high rate of
growth, coupled with soaring domestic demand, resulted in a significant widening in the current account deficit. The
rise in the current account deficit forced the Central Bank of Turkey (CBRT) and the Banking Regulation and Supervision
Agency (BRSA) to introduce a number of countermeasures in 2011. Although the depreciation of the TL from July
onwards did slow the expansion of the current account deficit on an annual basis, at year’s end, the deficit reached
USD 77.1 billion, up 66.3% from the prior year. In 2012, the evolution of oil prices and the TL, along with the level of
economic activity, are expected to ultimately determine the level of the current account. The budget deficit, however,
decreased 56.5% from a year earlier and totaled TL 17.4 billion in 2011.
One unfavorable development in 2011 was the rise in the consumer price index (CPI) to 10.45%; in the prior year,
CPI had fallen to 6.4%. The global rise in commodity prices, the depreciation of the TL, and various tax adjustments
all contributed to the increase in inflation. However, the dynamics that fueled inflation in 2011 are expected to lose
steam in the coming year; Turkey is expected to reach its 2012 year-end inflation targets.
During the course of the year, the CBRT slashed its policy rate by a total of 75 basis points to 5.75% and continued
the unconventional monetary policy it had adopted in 2010 in order to ensure financial stability and prevent a sharp
depreciation of the TL. This policy environment contributed to a rise in both the current account deficit and the
weakening the exchange rate. The CBRT is expected to maintain its policy stance in the coming period in the face of
rising inflation, while global uncertainties will play a key role in determining monetary policy.