system. these banks not only operate in a competitive banking market, but also undertake operations on behalf of the government, such as providing preferential loans to the agricultural sector and to small and medium - sized businesses. since it is intended to eliminate preferential credits in the medium - term, these banks can be commercialized by privatizing them. another reform that the turkish government has recently undertaken is social security reform. let me give you a brief summary of turkey ’ s social security system, which has caused major budgetary problems in recent years. the turkish social security system includes three pension institutions. the first and largest, the sse, is for corporate employees, the second is for civil servants, and the third is for the self - employed. all three operate on a “ pay - as - you - go ” basis, which means that pensions are paid out of the current contributions of the working population and not of the past contributions of the retirees. the main reason for the growing deficits of recent years is not the ageing of the population, but early retirement. the pension system deficit has been growing rapidly since 1992, when the minimum retirement age requirement was abolished. a new bill to correct this situation has already been approved by parliament. as regards privatization, public enterprises still play a central role in turkey. we all know that a stronger privatization program would reduce the state ’ s involvement in commercial and industrial activities, and that this in turn would reduce the budgetary burden of subsidies and deepen the capital markets by encouraging wider ownership of shares. since privatization has come to be seen as a key element of policies aimed at improving resource allocation, it will be essential to modernize turkey ’ s legal and institutional framework for privatization and to bring it more in line with eu norms and the norms now prevailing in some of the region ’ s more successful transition economies. an adequate legal foundation will be the key element of such reforms. important steps have recently been taken in this direction, and the constitution has been amended to reduce the legal obstacles obstructing the privatization process. and in order to attract foreign investors who could be interested in privatization, long awaited amendments to the constitution concerning international arbitration have also been approved by parliament. the agricultural sector is especially important in turkey. it still contributes around 15 % of gdp and accounts for about 42 % of all employment. in turkey, total support to agriculture has more than doubled in the last 10 years, while in other western countries it has been reduced. turkey

in addition to this development, em governments have consciously borrowed less in foreign currencies in the wake of their earlier financial crises. combined effects have, on average, reduced government owned external debt to gdp ratio from 28 percent at the beginning of the 2000s to 18 percent in 2014. this decline in eurodollar loans manifests deepened domestic debt markets and hence have reduced the so called “ original sin ” problem of emerging markets to the extent that foreign investors willing to lend in domestic currency as opposed to hard currencies. it is argued that one of the factors that created economic instability in emes is the “ original sin ” problem. according to this hypothesis emerging and developing countries are unable to borrow abroad in their own currencies reflecting lower degrees of portfolio diversification at the global level to emerging currency denominated investments. needless to say, borrowing in foreign currencies creates currency mismatch problem – increases in the cost of debt - servicing of foreign currency – denominated external obligations in cases of real exchange rate depreciation. the cost is measured in terms of the reduced purchasing power of domestic output over foreign claims following the depreciation. the original sin indicator depicted in figure 5 shows that original sin level is much below that of the 1990s despite its rise since the beginning of 2012. bis central bankers ’ speeches in other words, emes ’ share of obligations in foreign currencies is well below those observed in the 1990s. 7 bailing out banks during the above mentioned eme financial crises put heavy burden on government budgets of emes. it was well - understood that banking sector plays a systemic role. in order to avoid bailout costs and disturbances to the intermediation of loans to real economy emes overhauled their banking sector regulatory and supervisory systems. these reforms tried to ensure that banks hold adequate capitals to be resilient to shocks and, in general, run their businesses in a prudent way. figure 6 shows that leverage ratios measured as ( risk unweighted ) capital divided by total assets, on average, stayed above the average levels of the 1980 ’ s and 1990 ’ s and also the average ratio of advanced economy banks. after evaluating the key stock balances, i now move to flows balances to uncover the dynamics governing stock balances in the economy. they include economic growth, inflation and current account balance. the left window of figure 7 shows that the average gdp growth rates of emes are still above that of aes and em