The economic and financial stability in Turkey: a historical perspective

Abstract

Since gaining independence in 1923 until the 2000s when the Republic of Turkey applied for membership in the European Union, volatile trends were recorded in the country in terms of both economic growth and financial performance. In the early stages, lack of human capital and hard currency reserves prevented rapid economic growth and creation of welfare. The priority was given to institutional reforms in order to achieve sustainable growth under low inflation and financial stability. Heightened political unrest in Europe leading to WWII forced the Young Republic to rely on a “mixed” system of etatism for sustainable growth and financial stability. Private ownership and greater participation of private capital in economic activity were given additional incentives during the 1950s, whereas an import-substitution growth strategy was initiated quite successfully during the 1960s when the Turkish economy experienced the best growth performance during 80 years of its existence. The oil crisis of the 1970s took away all the resources and prevented the emergence of strong private banks. The accumulated capital was wiped out by the balance of payment crises. The second half of the 1980s was the period when private banks began winning a market share. The 1990s, which may best be described as the “lost decade” in terms of banking and financial stability, ended with a huge financial crisis in 2001. After 2002, Turkish economy managed to achieve a very high level of growth that came with low and decreasing rate of inflation. The Republic of Turkey is now facing the challenging task of increasing domestic savings to support sustainable growth under low and stable inflation and managing its way through the complications of global financial crises that still clouds the air and threatens the economic and financial stability all around the world.

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