Standby Agreement Between Turkey And IMF
Over the past two decades, Turkey has suffered repeated economic crises. The latest happened earlier of last year, when a devaluation of the currency had the people taking to the streets. Economic labels like budget deficit, high interest rates, price hikes, and contracting economy give mere ghostly hints of the pain the Turkish economy has suffered. Desperate for loans, the Turkish government has had consecutive stand-by agreements with the International Monetary Fund (IMF) and is currently implementing an IMF-backed reform program worth some $19 billion. Last year, Turkey won approval from the IMF governing board for up to $10 ...view middle of the document...
Within the framework of the IMF packages, Turkey is aiming to trim state bureaucracy, cut government spending, reform the financial system, privatise public sector enterprises, enhance transparency in economic management, improve governance in the public and private sectors and strengthen the social security net. Yet Turkey's problems persist today, even though it was among the first countries in the region to venture on to the track of reform. Indeed, the reform Egypt began through its own stand-by agreement in the 1990s, had been preceded by Turkey's reform program in the 1980s.
Beforehand, Turkey was a well-protected market and import substitution was the model for Turkish industrialisation. But beginning in 1980, a programme of economic reform was launched that aimed to decentralise the economy and strengthen market mechanisms. Within that framework, laws were developed to liberalise foreign trade rules, the foreign exchange regime and activate the capital market.
Turkey's deteriorating economy has provoked critics to ask whether the liberalisation which accompanied reform is in fact the culprit. But according to many people Turkey's economic crisis is due to its failure to implement the necessary institutional changes needed for a market economy. This led the economy to slow. Foreign currency expenditure grew as a result of the liberalisation of imports, while revenues in foreign currency shrank. This led to the increased indebtedness of the country.
While many believe Turkey's ills stem from globalisation and the opening of the economy, the real causes are different. Turkey's problems are because of incompetent management and not because of liberalisation .Turkey would have suffered more if it had not adopted a free market economy."
The weakness of Turkey's financial sector lies behind the current economic crisis which he described as "the worst in Turkish history.
The reason why the Turkish economy is in a deep crisis is not globalisation, it is because Turkey has failed to execute many of the measures accompanying reform. Coupled with political instability, this has led to a crisis. The structural measures which had to be implemented years ago are now being enforced, the reform of banks, social security, farming policy, and public procurement as crucial to economic improvement. Once that is done, the Turkish economy will have finally laid the necessary stones for a long-term and healthy growth strategy, while still embracing globalisation.
One area where significant reform is happening in Turkey is in the financial sector. Banks are now responsible to independent and professional bodies. The changes in governance have also been complemented by three other steps: a complete financial restructuring of the system to protect depositors and creditors and permit parts of the system to return to life; ridding banks of unprofitable activities; and a toughening of supervision to ensure that past problems do not occur.