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Turkey also experienced financial crisis starting in January 1998, resulting from an inadequate recovery from a previous recession and the effects of the Asian crisis of 1997. Economic liberalization occurring in the 1990s resulted in a surge in public debt between 1991 and 1994 and boom-bust cycles. Current account deficits and interest rates increased. A stabilization program announced on April 5, 1994 was insufficient to counter the impact of the recession, and as the Asian financial crisis produced negative international economic effects, debt levels were rendered unsustainable (Yurdakul 2014). Troubles escalated by 1999, and programs for fighting inflation were implemented. The exchange rate stabilization program functioned for a short time, but thereafter got off course. The IMF stepped in during the fall of 2000 with a large bailout package. Attacks on the currency led to abandonment of the currency peg in February 2001 (Akyuz and Boratov 2003).

Fiscal austerity and monetary tightening measures in response to the crisis worsened the recession and dampened growth. The global economic environments did not help matters, since the Asian financial crisis and later, the events of September 11, 2001, led to slowing growth worldwide. The Turkish financial crisis required four IMF bailout packages. Deregulation of interest rates, and liberalization of the capital accounts, had the impact of increasing the cost of public sector financing, as the government was forced to pay higher interest rates relative to safer dollar assets and the rate of inflation.

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