education was reinstituted, the call to prayer in Arabic allowed once more, and the pilgrimage to Mecca facilitated by looser regulation of foreign exchange. These changes, as well as increased attendance at Friday services and government restoration of many mosques, were part of the so-called religious revival which accompanied political liberalization. Some of the changes were instituted by the Republican People's Party in an attempt to retain political power while others were made by the Democrat Party after their 1950 electoral victory (see ch. 11, Religion).

Some, but not all members of intellectual and elite groups, such as the military hierarchy, considered these developments evidence of a religious reaction and feared further modification of the Atatürk reforms to which they were emotionally and intellectually attached. The fear reflected a distrust of the villagers and a belief that they were susceptible to reactionary appeals. The tendency of the Democrat Party to resort to religious appeals to the electorate, as criticism of their rule mounted, did nothing to ease their fears. As a result the 1961 Constitution enshrined secularism as one of the basic attributes of the Republic, and in Article 19, prohibits the use of religion for political or private gain. The constitutional restrictions restrain debate and polemics on religious issues. They also make it more difficult to determine to what extent the average citizen shares the desire of some religious and conservative leaders to see secularism displaced. The religious issue in politics remains an unclear one, with some commentators denying its very existence. The persistence of the concern points out the difficulties in bringing closer together the two major segments of the population, as symbolized by the village and the city.

SECTION III. ECONOMIC

CHAPTER 18

CHARACTER AND STRUCTURE OF THE ECONOMY

The country's sustained endeavors to create a modern industrial nation within the framework of a series of governmental development plans were making progress during the late 1960's, but the traditional agrarian pattern was still evident in the Turkish economy. In 1968 over two-thirds of the population lived in rural areas and 70 percent of the total labor force found employment in the agricultural sector. The commercial and industrial sectors were small but their activities were expanding. In its relations with the rest of the world, the country was a supplier of a limited range of agricultural commodities and other raw materials, and a consumer of capital equipment and manufactured goods.

The economic system is one of mixed public and private enterprise. Of the total industrial, mineral, and power production of the country, approximately half is supplied by each sector. The private sector concentrates its activities in the manufacturing and light industrial area; the public sector provides utilities and heavy capital-intensive endeavors such as iron and steel industries, mining, petroleum, and textiles.

The private sector's contribution to Turkish progress was slow at first, but it has been gaining momentum since 1963. As late as the early 1960's, private enterprises were unwilling to assume the risk associated with the new industrial ventures. Most private businesses were generally commercial in nature, small, and familyrun. By 1967, however, largely because of several years of rapid growth, to expanded credit facilities, and to official encouragement, businessmen in increasing numbers were beginning to enter into more sophisticated investment endeavors such as chemicals, paper, and automotive equipment.

The government's role in stimulating industrial development in Turkey stems from the founding of the Republic in 1923. At that time the government aimed to build up heavy industry and its policy was that of state ownership. To finance its development plans two state-owned holding companies, the Sümerbank and the

Etibank, were set up. However, World War II interrupted the government's development programs and during the post-war years economic activity declined.

This situation began to change in 1950 after the Democrat Party came into power and undertook to strengthen and diversify the economy. Private enterprise was given encouragement and a number of state-owned monopolies were turned over to the private sector. Foreign and domestic capital were urged to form new industrial undertakings. To enhance the pace of economic development the government embarked upon a large scale expansion of public works programs, especially the development of electric power and communications.

The state's efforts to achieve rapid industrialization met with a number of serious difficulties, and by the end of 1955 the country was facing an economic crisis. Speeding up the pace of development had required increasingly large imports of heavy machinery and industrial goods but there had not been a corresponding expansion of its exports. The net result was a series of foreign trade deficits which resulted in a deterioration of foreign confidence in the Turkish economy and produced considerable inflationary pressure at home. Low prices for chromium and copper exports on the world market and a series of bad harvests aggravated the situation. In addition the country was burdened with heavy defense commitments which necessitated nearly 40 percent of budgeted expenditures to be devoted for this purpose.

During the late 1950's the government introduced restrictive measures aimed at curbing inflation and stabilizing the economy. These included limitations on the amount and availability of credit, a reduction in the level of nonessential investment and a minor de facto devaluation of the Turkish lira through the use of multiple exchange rates.

Governments in power after the 1960 coup continued to apply stabilization measures, including a drastic devaluation of the lira from LT 2.80 per dollar to LT 9.00 per dollar. These measures were reasonably successful and some of the restrictive credit controls could be relaxed by the mid-1960's. Since then, relative monetary stability has been maintained and the average increase in wholesale prices has been less than 4 percent per year. However, large foreign trade deficits still remained a feature of the economy in 1968.

An important feature of the early 1960's was the government's decision to deal with long term economic and social problems in a systematic manner- -a reversal of the uncoordinated expansionist policies of the previous decade. To formalize short and long range plans for development, a State Planning Organization

was established in 1960. Directly under the Prime Minister it is the chief planning and advisory body to the government for economic and social policies and objectives. It also works to coordinate political goals and development aspirations.

Shortly after, the State Planning Organization began work on a comprehensive economic development plan, divided into three successive medium range plans of 5 years each. In 1963 the comprehensive plan was adopted. Its overall objective is to raise the economic well-being of the nation within the limits of social justice. Its provisions are binding on the public sector and indicative for the private sector.

Specific long range targets to be achieved during the period ending in 1977 include an annual growth rate of 7 percent, representing an increase in the country's gross national product from LT 52.7 billion in 1962 to LT 145.3 billion in 1977. The plan also envisages a decrease in the amount of unemployment and underemployment, a shift in the distribution of the labor forces from agricultural pursuits to industrial, commercial and service endeavors, and a solution of the balance of payments problem. Additionally, it calls for a large enough increase in the number of skilled workers and high level scientific and technical personnel to meet the requirements of domestic industry.

The primary responsibility for achieving the plan targets rests with the government. Its main task is to insure that a substantial increase in domestic savings is forthcoming. Secondly, its investment expenditures through the consolidated budget and the State Economic Enterprises have to show considerable expansion, top

Table 14. Investment Targets, Turkey's First 5-Year Plan, 1963–671

Source: Adapted from Republic of Turkey, State Planning Organization,

Planning in Turkey, No. 1, 1963.

priority being given to development expenditures for health, education, and agriculture. Finally, the public sector has the responsibility of formulating policy measures which will stimulate private enterprise to contribute its share of investment as anticipated by the plan.

In 1967 the country successfully completed the First 5-Year Plan, 1963-67, which called for a gross investment of LT 59.6 billion. Approximately 40 percent was financed by private interests, and roughly LT 2.3 billion was estimated as needed annually from foreign sources. The largest single share of total investment was devoted to housing (see table 14).

Performance during the plan years compared favorably with the planners' projections. Not all of the targets were reached, but the record for 1963-67 was better than that of the late 1950's. Allowing for variations due to fluctuating harvests, the growth of the country's gross national product was rapid and fairly constant. The average rate of growth over the period was 6.6 percent per year. Annual industrial growth was approximately 10 percent. Commodity exports increased by 36 percent, rising from about $368 million in 1963 to an estimated $500 million in 1967. A new source of foreign exchange emerged in the form of remittances from Turkish workers employed in Western Europe. These were about $100 million in 1967, compared with $9 million in 1964.

Government revenue recorded an increase of over 60 percent between 1963 and 1967, mainly because of a number of tax reform measures. However, the rise in government budgetary spending associated with expanded development programs for health, education and agriculture tended to outstrip the advance in revenue. Thus despite the First 5-Year Plan's emphasis on noninflationary financing, deficits were incurred during the period it was in effect.

At the end of 1967 the country's reliance on foreign aid was still high, but the relative importance of such aid for the financing of investment had fallen. This decline was the result of the mobilization of domestic savings. In 1963 internal savings financed 73 percent of Turkish investment. By 1966 some 90 percent of the country's investment needs were met by savings. For 1967 the figure may have reached 92 percent.

While the country managed to achieve many of the goals the government had set for 1963-67, little progress was made toward implementing the structural reforms emphasized by the First 5Year Plan. These included such crucial tasks as raising direct tax revenue and making the tax burden more equitable, increasing the productivity in the agricultural sector, reorganizing the State Economic Enterprises which were inefficient in operation and absorbed too much capital, improving communications, and most