However, with the normalization in financial markets, we foresee that the distinguishing characteristics of countries will come to the fore in the upcoming period and currencies of those countries with lower risk, stronger economic and financial fundamentals and high growth potential are expected to perform better. In this regard, it would not be surprising if Turkey’s credit rating is raised to reach the investment grade implied by the actual CDS spread. As for recent developments in the Turkish economy, the moderate recovery in economic activity continues. Quarterly growth in GDP continued in the last quarter of 2009. As tax cuts that were put into practice with the aim of spurring economic activity were phased out, private consumption demand displayed a more moderate rise compared to the first half and the gradual recovery in private consumption expenditures continued in the third quarter. Meanwhile, private investment expenditures continued to pick up in the last quarter but remained lower compared to strong growth periods. Taking into account the uncertainties pertaining to domestic and foreign demand and the low capacity utilization rates, it is estimated that it would take an extended period of time for investment expenditures to reach their pre-crisis levels and no significant rise is expected in the short run. Recently, imports have increased faster than exports and this indicates that the recovery in the economy is mainly driven by domestic demand. The course of exports in the upcoming period will be determined by the pace of global recovery.
Meanwhile, the improvement in global risk perceptions in the fourth quarter led the currency of many developing countries to appreciate. In terms of changes in currency values, the Turkish lira did not significantly differ from currencies of other emerging markets in this period. Public debts and budget deficits have increased on a worldwide scale due to fiscal stimulus and decreasing tax incomes. In many countries, the ratio of public debt to national income went beyond the sustainable level of 60 percent (Maastricht Criteria), which may ease concerns about public finance and create upward pressures on market interest rates. I am of the opinion that, should market interest rates increase; the severity and duration of the global crisis will be adversely affected. The discipline established by Turkey in public finance in the past has significantly increased the resilience of the public against external shocks as well as confidence regarding the sustainability of debts. These improvements in the structure of public finance and the sustainability of debts allowed the implementation of expansionary fiscal measures, albeit limited, in order to alleviate the impact of the global crisis. In this respect, SCT and VAT rates on some products were temporarily reduced to allow de-stocking for firms and a new investment incentive system was established to improve the investment atmosphere. Additionally, tax cuts and fiscal incentives were introduced to increase employment, and  BIS Review 79/2010  5  credit and guarantee supports were provided for SME’s and exporting firms.