On the IMF-directed disinflation program in Turkey: a program for stabilization and Austerity or a Recipe for impoverishment and financial chaos?

Abstract

In December 1999, Turkey adopted a comprehensive disinflation program, aiming at decreasing the inflation rate to a single digit by the end of 2002. Aided with the supervision and technical support of the IMF, the new program relied on exchange rate based disinflation and monetary control by setting upper limits to net domestic asset position of the Central Bank (CB). The program further entailed a series of austerity measures on fiscal expenditures and set specific targets for the balance on non-interest, primary budget. Yet, just eleven months after launching the disinflation program Turkey experienced a severe financial crisis in November 2001 and then again in February 2001. In this paper I attempt to evaluate the theoretical foundations of the disinflation program and highlight its structural weakness in light of the international stabilization experiences. In so doing I also highlight the role of the IMF in the emancipation of the financial crisis.