Turkish economy: 1980-2001

Abstract

In this chapter we provide a brief account of the Turkish economy during the last twenty years. After the implementation of a structural change and reform program in 1980, the economy experienced a relatively high growth rate of gross domestic product, a healthy balance of payments situation and relatively low inflation in early 1980s. Towards the end of the 1980s, the annual inflation started to rise in a stepwise fashion and the growth performance was poor afterwards. Due to exchange rate policy preferences of the authorities, the economy became dependent on short-term capital flows - so called hot money - for the last ten years. As a result, the exemplary economy of the 1980s became a textbook case of a “boom-bust” economy with relatively lower GDP growth and with high volatility in the 1990s. Recently, the government launched another restructuring and reform program. The aim of the program is to reduce annual inflation to single digits by the end of year 2002. A short-lived financial crisis during the course of the program showed that the financial system is very fragile. Ironically, the latest crisis made it clear that the continuation of the disinflation program and the stability of the banking system in the short run depend on short¬ term capital inflows.