Abstract: Turkish macroeconomic history, including the crisis of 1999 and the current disinflation program, can only be presented and analyzed adequately by understanding Turkish inflation, whence it came and to where it is After the Second World War, its geo-strategic position between Europe, Asia, the Middle East and the Soviet Union propelled Turkey into the founding membership of the OECD. As a byproduct of the Cold War, Turkey, despite the fact that all quantitative and qualitative indicators would have placed the country in a category of third world underdevelopment, enjoyed membership in the exclusive club of developed economies. Despite this fortunate beginning, the performance of the Turkish economy in the last half century has not been breathtaking: average GNP growth at 4.7 percent was substantial but well below the 6 to 9 percent range attained by other more successful economies with similar, if not worse, initial conditions. Relatively high population growth at 2.7 percent during the same period further reduced Turkey's rank in per capita income growth tables. Yet simply because it was not a miracle economy, it would be unjust to call the Turkish post-war experience in economic development a failure; rather, it was somewhere in between the two extremes, what I call mediocre for lack of another satisfactory adjective. The indicator that singles out Turkey from its peers in the newly industrialized economies, particularly over the last two decades, is the behavior of its inflation. Turkey is the only middle-income and sizeable open economy with relatively developed market structures that has managed to sustain average annual inflation rates around 60 percent for a long period of time without either falling into hyperinflation or successfully reducing it to reasonable levels.(1) Recent Turkish macroeconomic history, including the crisis of 1999 and the current disinflation program, can only be presented and analyzed adequately by understanding Turkish inflation, whence it came and where it is going. THE ECONOMY OPENS TO THE WORLD In the first three decades following the Second World War, Turkey, like many other developing economies, adopted an inward looking import substitution and industrialization strategy An overvalued currency and strict import controls, often involving full bans on the importation of foreign goods competing with goods produced domestically, resulted in a complex structure of administrative intervention. Bureaucratic controls extended to all important prices and markets, including the financial markets; however, the private sector dominated in Turkey. Private firms undertook all production in agriculture, trade and services and a substantial part of industry. The contradictions inherent in a system that tries to combine a command economy with a dominant private sector made the economy extremely rigid and vulnerable to external shocks, especially those that affected external deficits. The five-fold increase in oil prices in 1974, combined with the political isolation resulting from Turkey's military intervention in Cyprus the same year, proved fatal. By the end of the 1970s, structural deficits in the current account had brought production to a standstill and pushed consumer inflation to three-digit levels. As a result, Turkey suffered from falling real wages, black markets, shortages of basic goods and other typical signs of a failing economic system. The depth and intensity of the crisis and the need for international support convinced both policymakers and the public that undertaking the necessary reforms to create a more market-friendly and export-oriented development strategy was imperative. We can divide the last two decades of the 20th century into four distinct sub-periods, each associated with an important event: 1980-83: A stabilization program was implemented under a standby agreement with the IMF and continued under a military government. …
Publication Year: 2000
Publication Date: 2000-09-22
Language: en
Type: article
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Cited By Count: 22
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