onun bunun tarihi işte 1989 1994

8/10/2019 onun bunun tarihi ite 1989 1994

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3-Financial Liberalization and FinancialCrisies (1989-2001)

12 August 1989 Turkey decide to liberalize the capitalaccountand in February 1990Turkey applied to the IMF forthe full convertibilityof the Turkish Lira.

With this decision the liberalization process of Turkish Economywas completed and full integration of Turkish Economy withthe World economy was realized.

The timing of this important decision can be explained withpolitical developments and economic problemsat the end ofthe 1980s. The policy response of the government to thesedevelopments and problems was to liberalize fully the capitalaccount in 1989.


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Domestic financial markets was liberalized beforefiscal discipline had been secured and inflation

brought under control.

The foreign exchange regimehad already beenliberalized in certain respectsin 1984, bringing currentaccount convertibilityand allowing residents to holdforeign currency deposits in domestic banksand toengage in specified foreign exchange transactions.

New legislation in 1989 effectively lifted restrictions on

inward and outward financial transactions byresidents and non-residentsalike, thereby exposing theeconomy to the whims of international capital flows.


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Capital account liberalization in August 1989increasingly forcedthe Turkish economy to become dependent on the newly emergingfinancial cycles, and the arbitrage-seekinginfows and outflowsled to deepening external and domestic instability.

Depending highinflows of financial capital, growth ratesofthe GDP tend to increase.

Yet periods of capital flightmean direct recession evenoutright collapse, as in1994, 1999, and 2001.


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a-Developments inPost-Capital Account LiberalizationPeriod (1990s)

The capital account liberalisation was made at least in part toattract short-term capital inflows, or hot money, to helpfinance the deficitsespecially the financing of public sectordeficits without crowding out private investment.

In the longer term, however, the decision to liberalise thecapital account before achieving macro-economic stabilityand creating a strong regulatory infrastructure for thefinancial sectorwas very costly.

During the 1990s interest rates on government debtexceeded the inflation rate, on average, by more than 30per cent.

As the economy became increasingly vulnerable to externalshocks and sudden outflows of capital, the 1990s turnedinto the most difficult period in the post Second World war Era.


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Public Sector Deficits

Public-sector deficits continued to widenin the 1990s,with programmes directed towards various segments of theelectorate, cheap credit to small businesses, lowerretirement ageand more generous retirement benefits and,most importantly, high support prices for the agriculturalproducers.

The war, which began in 1984against the PKK in South-Eastern Turkey, also imposed a large fiscal burden in the1990s.

Domestic and external borrowing was the most importantmechanism for financing the growing deficits.

High interest-rates and apegged exchange rate regimeattracted large amounts of short term inflows


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Private banks rushed to borrow from abroad in order to lend

to the government. In addition, large public-sector bankswere directed by the governmentsto finance part of theseoutlays.

In these years monetary expansionwas also used as a regularinstrument for fiscal revenue.

Government was increasingly engaged in Ponzi financingwhereby rising interest payments could only be met by issuingnew debt instruments.

While interest payments on domestic debt absorbed less than20 per centof tax revenues at the end of the 1980s, thisproportion rose steadily throughoutthe 1990s exceeding 75 percent at the end of the decade.


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The PSBR (Public Sector Barrowing Requirement) roserapidly during the same period reaching, 24 per cent of GDP.

In the beginning of 1993, there was a change in partyleadershipof the leading coalition partner DYP, and Ms. Cillerwas elected as Prime Minister in mid June.

Towards the end of July, the Central Bank governor resigned asa result of disagreements between him and the Prime Minister onthe conduct of monetary policy.

In the meanwhile, it was often stated by the government that themost important short term policy goalwas to lower theburden of the share of interest paymentson short term debt,by lowering the nominal interest rates.


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b- 1994 Crisis and 5 April Decisions

Between 1990 and 1993, cumulative net capital inflows bynon-residentsreached $25 billionwhile the current accountdeficit remained below $10 billion.

Only a small part of the surplus was absorbed by increases inreserveswhile a large proportion was used to finance netcapital outflows by residentswho apparently took the

opportunity offered by the new capital account regime to diversifytheir portfolios by acquiring assets abroad.

The boom in capital inflows was associated with an appreciationof the currency, a strong recoveryduring1992-1993andwideningcurrent account deficits.

Between 1990 and 1993, the averageinflation was around65per cent, average annual increase in the dollar against thelirawas 52 per centwhile the average interestrate on short-term government debt was over 85 per cent


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The boom was followed by a bust in the beginning of1994, with

a rapid reversal of net capital inflows.

The downgrading of theTurkish credit rating in internationalmarkets as well as efforts by the government to impose lowerinterest rates on banks participating in Treausary-billauctionsplayed an important role in triggering the reversal

of capital flows.

The Turkish lira depreciatedby almost 70 per centagainst thedollar in the first quarter of 1994. The Central Bank heavilyintervenedin the foreign exchange market and as a result, lost

more than half of its international reserves.

Inflation reachedthree digit levels, and interest ratesrocketed to exceed 150 per cent. The economy went into adeep recession in 1994and the current accountswung intosurplusas a result of massive cuts in imports.


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5 April Decisions (5 April 1994)

In 5April 1994, about a week after the local elections, thegovernment announced a stabilization programme. Thisinvolved:

priceincreases of 70 to 100percent on SEE goods,

public sector wageswould be freezed,

the planned government deficit was halved for 1994 (this

deficit reduction would be achieved mainly through one-

timetaxes on the net assets of firms, wealth and

corporate taxes, also by the real declinein the wage bill,and a cutting downon public investment)

full insurencewere granted depositsin the banks


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c- 16. Stand-by Agreement (6 July 1994)

After the 5 April 1994 stabilization program was announcedby the government, the IMF approved a stand-by ofUS$ 742 million in June 1994, which strongly urged therapid implementation of the structural reform

measures.

In fact, the stabilization program did not achieve any of itsmedium term structural adjustment measures to date, suchas the implementation of the privatization programme, and

social security and tax reform.

onun bunun tarihi işte 1989 1994

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