Professor of Economics, Bilkent University, Ankara, E
Executive Member, International Development Economics Associates, (IDEAs) www.networkideas.org
June, 2008
Background to the “Long Decade”
In May this year Turkey has ended its last stand-by with the International Monetary Fund (IMF) that covered 2005 through 2008. To some this meant the long awaited declaration of autonomy for Turkey and the loss of the final “consumer” for the IMF. For some others who adhere to the neoliberal orthodoxy, this meant the graduation of Turkey and the successful completion of the IMF programme. The reality is that neither of these assessments is correct, as Turkey is currently trapped in a high debt, speculative growth environment with jobless patterns; and its government institutions are put under siege by the eradication of numerous independent bodies of governance which are under the direct supervision of both the Bretton Woods Institutions such as the IMF and the World Bank, as well as the International Finance Institutions (IFIs). Thus, there is neither autonomy, nor successful graduation.
Turkey and the IMF signed a Staff Monitoring Program in 1998 to enable closer supervision and control of the Turkish economy by the IMF staff. Turkey experienced a severe economic crisis in November 2000 and again in February 2001 when it was following the exchange-rate based disinflation program led and engineered by the IMF.1 During the year 2001, GNP fell by 5.7% in real terms, consumer price inflation soared to 54.9%, and the currency lost 51% of its value against the major foreign monies. The burden of adjustment fell disproportionately on the laboring classes as the rate of unemployment rose steadily to 10% and the real wages were reduced abruptly by 20% upon impact in 2001 and have not recovered to this day.
The IMF had been involved with the macro management of the Turkish economy both prior to and after the crisis, and provided financial assistance of $20.4 billion, net, between 1999 and 2003. Following the crisis, Turkey implemented an orthodox strategy of raising interest rates and maintaining an “overvalued” exchange rate. The government followed a contractionary fiscal stance, and promised to initiate further steps towards “market friendly” reforms.
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