Since the crisis, however, Turkey's economy has recovered strongly thanks to good monetary and fiscal policies and structural economic reforms made with the support of the International Monetary Fund and the World Bank. The independence of the Central Bank from political interference has been firmly established, a floating exchange rate system has been put in place, and the government's overall budget deficit has been substantially reduced. In addition, there have been substantial reforms in the financial, energy, and telecommunications sectors that have included the privatization of several large state-owned institutions.

Thanks to these efforts, Turkey's economy grew an average of 7.5% per year from 2002 through 2005--one of the highest sustained rates of growth in the world. Inflation and interest rates have fallen significantly, the currency has stabilized, government debt has declined to more supportable levels, and business and consumer confidence have returned. At the same time, the booming economy and large inflows of portfolio investment have contributed to a growing current account deficit. Though Turkeyís vulnerabilities have been greatly reduced, the economy could still face problems in the event there is a sudden change in investor sentiment that leads to a sharp fall in the exchange rate. Continued implementation of reforms, including tight fiscal policy, is essential to sustain growth and stability.

After years of low levels of foreign direct investment (FDI), in 2005 Turkey succeeded in attracting $9.6 billion in FDI and is expected to attract a similar level in 2006. A series of large privatizations, the stability fostered by the start of Turkeyís EU accession negotiations, strong and stable growth, and structural changes in the banking, retail, and telecommunications sectors have all contributed to the rise in foreign investment. Turkey has taken steps to improve its investment climate through administrative streamlining, an end to foreign investment screening, and strengthened intellectual property legislation. However, a number of disputes involving foreign investors in Turkey and certain policies, such as high taxation of cola products and continuing gaps in the intellectual property regime, inhibit investment. Turkey has a number of bilateral investment and tax treaties, including with the United States, that guarantee free repatriation of capital in convertible currencies and eliminate double taxation.

Oil provides about 43% of Turkeyís total energy requirements; around 90% is imported. Domestic production is mostly from small fields in the southeast. New exploration is taking place in the eastern Black Sea. In 2004, the Parliament approved a petroleum market reform bill that liberalized consumer prices and would lead to the privatization of the state refining company TUPRAS. TUPRAS was privatized in 2005, but this has been held up by court cases still in process. Turkey has a refining capacity of 802,275 barrels per day (b/d).

Turkey acts as an important link in the East-West Energy Corridor bringing the Caspian energy to Europe and world markets. The Baku-Tbilisi-Ceyhan pipeline, which will begin operation in 2006, will deliver 1 million b/d of petroleum, and in late 2006, the South Caucasus Pipeline (from Shah Deniz) will bring natural gas from Azerbaijan to Turkey. Turkey is building an interconnector pipeline to Greece, an important step in bringing Caspian natural gas to Europe via Turkey.

In 2003, the Ministry of Environment was merged with the Forestry Ministry. With its goal to join the EU, Turkey has made commendable progress in updating and modernizing its environmental legislation. However, environmental concerns are not fully integrated into public decision-making and enforcement can be weak. Turkey faces a backlog of environmental problems, requiring enormous outlays for infrastructure. The most pressing needs are for water treatment plants, wastewater treatment facilities, solid waste management, and conservation of biodiversity. The discovery of a number of chemical waste sites in 2006 has highlighted weakness in environmental law and oversight.

Principal growth sectors are tourism infrastructure, building products, automobiles and automotive parts, and electronics.