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Turkey: The Economy: An Unresolved Issue
Country Study > Chapter 1 > Historical Setting > Crisis in Turkish Democracy > The Economy: An Unresolved Issue

THE ECONOMY: AN UNRESOLVED ISSUE


The Turkish economy was severely hurt by the increase in oil prices after 1973. Conditions deteriorated over the next several years, reaching the crisis level by 1977. Inflation reached a rate exceeding 50 percent that year, while unemployment was unofficially estimated at as high as 30 percent of the available workforce. Domestic industries also lost ground in export markets because of increases in the cost of raw materials and energy. Turkey's trade deficit reached US$4 billion in 1977, contributing to a balance of payments deficit nearly five times the 1974 level. Becoming skeptical of Turkey's ability to repay existing debts, a number of foreign creditors refused to extend further loans. As a result, the country virtually ran out of foreign exchange to meet its immediate commitments and was faced with national bankruptcy, which was averted only when the Central Bank intervened by suspending payments for many imports and, in effect, forced credit from foreign exporters.

Under pressure from the International Monetary Fund (IMF -- see Glossary), the Demirel government belatedly announced such measures as a 10 percent devaluation of the currency and substantial increases of some government-subsidized prices. By the end of 1977, Turkey had accumulated a total external debt of more than US$11 billion. The Ecevit government came to power in January 1978 with a stabilization program that essentially had had to be approved by the IMF and the OECD. The plan included incentives for foreign investment and further price adjustments to restrain domestic demand. An international consortium of six banks collaborated in restructuring the Turkish debt and arranged for a US$500 million loan to the Central Bank for economic development. Subsidies to state-directed enterprises were cut, but Ecevit insisted on increased public spending for employment and regional development, which he argued were required to maintain "domestic peace."

Despite the stabilization program, another major devaluation of the Turkish lira (for value of the Turkish lira -- see Glossary), and rescheduling of the foreign debt, there were no clear signs in 1978 that economic recovery was under way. In fact, austerities imposed under the program had the opposite effect to what was intended. Because of energy conservation efforts and restrictions imposed on imports of raw materials, industrial production fell. Consequently, exports lagged and unemployment continued to increase. State enterprises registered losses of about US$2 billion for the year. Because of a lack of confidence in the government, the stabilization program failed to attract new investment from abroad.

On returning to office in November 1979, Demirel proposed a new economic stabilization program that for the first time emphasized private-sector initiatives. The program, drawn up in consultation with a consortium of international banks, was approved by parliament, and Turgut Özal, an economist, was placed in charge of implementing it. Some progress was recorded, but the government's attention was diverted by intensified political violence, which by mid-1980 was claiming twenty or more lives a day.




Last Updated: January 1995


Editor's Note: Country Studies included here were published between 1988 and 1998. The Country study for Turkey was first published in 1995. Where available, the data has been updated through 2008. The date at the bottom of each section will indicate the time period of the data. Information on some countries may no longer be up to date. See the "Research Completed" date at the beginning of each study on the Title Page or the "Data as of" date at the end of each section of text. This information is included due to its comprehensiveness and for historical purposes.

Note that current information from the CIA World Factbook, U.S. Department of State Background Notes, Australia's Department of Foreign Affairs and Trade Country Briefs, the UK's Foreign and Commonwealth Office's Country Profiles, and the World Bank can be found on Factba.se.

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