Erinc Yeldan

Politics, Society and Financial Liberalization: Turkey in the 1990s

This article focuses on the political economy of Turkey in the 1990s to illustrate the importance of analysing economic variables that intersect with the quality of political democracy. In 1989, the debt-ridden state moved to systematically and completely deregulate Turkey’s financial markets. Together with the ongoing processes of liberalizing commodity markets and integrating with global capital markets, financial liberalization was expected to achieve fiscal and monetary stability, stimulate business confidence to invest in productive sectors, produce stable growth, encourage privatization and control inflation. However, the new hegemony of the capital markets has gone hand-in-hand with deteriorating macroeconomic performance, a worsening income distribution, the discrediting of politics and its isolation from society. The authors examine several key dynamics which are helping to legitimate the neoliberal agenda of the 1990s. These include the distribution of state largesse to manipulate electoral capitalism; the rise of an informal sector in the ‘Anatolian Tigers’; promotion of the seductive attractions of the market; and an antipolitical reform populism adopted by political actors to exploit popular disillusionment with the political system.

On Turkey's Trade Policy: Is A Customs Union with Europe Enough?

Abstract Turkey has decided to harmonize its tarification structure with that of the European Union. For the countrys authorities, this move to a Customs Union is only meant to be the first step toward integration in the European Union. There are signs, however, that political opposition to the governments procompetitive stance may be strong enough to block any further move toward fuller trade liberalization. We show, using applied intertemporal GE analysis, that to be welfare improving, the trade reform would have to be pursued further and nontariff barriers on European trade removed. Failure to do so could be more detrimental to domestic welfare than no reform at all.

Strategic Policies and Growth: An Applied Model of R&D-Driven Endogenous Growth

Abstract We introduce and explore a general equilibrium model with R&D-driven endogenous growth, whose antecedents are the models of Romer (1990) [Romer, P.M., 1990. Endogenous technological change. Journal of Political Economy, 98, S71-102] and Grossman and Helpman (1991) [Grossman, G.M., Helpman E., 1991. Innovation and Growth in the Global Economy, The MIT Press, Cambridge]. Utilizing evidence from recent econometric studies on sources of growth, the model also accounts explicitly for cross-border technological spillovers. The model is specified and calibrated to data from Japan, and is solved to obtain both the transitional and the steady-state equilibria. We explore the effects of selective trade and R&D promotion policies on long-run growth and social welfare. The model results suggest that while a strategic trade policy has little effect on re-allocating resources into domestic R&D activities, it can significantly affect the cross-border spillovers of technological knowledge, which, in turn, stimulates growth. We find that trade liberalization may cause the growth rate to fall and lead to a loss of social welfare in the long-run, although it improves welfare in the short-run. R&D promotion policies stimulate growth by inducing private agents to allocate more resources to domestic R&D, as well as to take greater advantage of global R&D spillovers. Here, we find significantly high growth effects together with sizable gains in social welfare at low incidence to tax payers.

Dilemmas of structural adjustment and environmental policies under instability: Post-1980 Turkey

Abstract The Turkish structural adjustment since 1980 has been associated with chronic instability. Since the late 1980s, the weaknesses in the fiscal system and the premature external liberalization emerge as the main factors hindering the passage toward stable growth. Enforced and erratic distributional changes and relative stagnation of capital accumulation have undermined the growth potential of the economy. Further, it is demonstrated that existing market structures may negate environmental policies based on market incentives. These observations, as well as those on the interactions of the market system and the environment, create strong arguments in favor of an active state.

The Turkish encounter with neo-liberalism: economics and politics in the 2000/2001 crises

Turkey initiated an extensive dis-inflation program in December 1999 backed and supervised by The International Monetary Fund (IMF). The program aimed at decreasing the inflation rate to a single digit by the end of 2002. It exclusively relied on a nominally pegged (anchored) exchange rate system for dis-inflation and on fiscal prudence. In February 2001, however, Turkey experienced a very severe financial crisis, which deepened and continued to-date. The official stance is that the crisis was the result of the failure of the public sector to maintain the austerity targets and the failure to implement fully the free market rationale of globalization. We argue in this article that, contrary to the official wisdom, the current economic and political crisis is not the result of a set of technical errors or administrative mismanagement unique to Turkey, but is the result of a series of pressures emanating from the process of integration with the global capital markets. We further provide a discussion on the fundamental parameters of the Turkish politics connected with the crisis.

Inflation Targeting, Employment Creation and Economic Development: Assessing the Impacts and Policy Alternatives

Inflation targeting (IT) has recently become the dominant monetary policy prescription for both developing and industrialized countries alike. Emerging market governments, in particular, are increasingly pressured to follow IT as part of their International Monetary Fund (IMF)‐led stabilization packages and the routine rating procedures of the international finance institutions. However, the common expectation of IT promoters that price stability would ultimately lead to higher employment and sustained growth has failed to materialize. Generally, the current growth patterns of the world economy are too concentrated and uneven to generate sufficient capital investment and reduce unemployment. To contribute to the task of designing a more socially desirable macroeconomic policy environment, we offer concrete country case studies that devise viable alternatives to inflation targeting central bank policies in order to promote employment, sustained growth and improved income distribution.

Neoliberal Global Remedies: From Speculative-Led Growth to IMF-Led Crisis in Turkey

Turkey experienced a severe economic and political crisis in November 2000, and again in February 2001. The IMF has been involved with the macro management of the Turkish economy both prior to and after the crisis, and provided financial assistance of

On the macroeconomic impact of the August 1999 earthquake in Turkey: a first assessment

20.4 billion, net, between 1999 and 2003. The official stance is that the crisis was the result of the failure of the public sector to maintain the austerity targets and the failure to fully implement the free market rationale of globalization. I argue in this article, however, that contrary to the official wisdom, the current economic and political crisis is not the end result of a set of technical errors or administrative mismanagement unique to Turkey, but is the result of a series of pressures emanating from the process of integration with the global capital markets. I document the fragility indicators of the Turkish financial and fiscal system, and show that the IMF program led to an increase in vulnerability of the financial system throughout 2000-2001. I further argue that the recent wave of structural reforms destined for stability and credibility serve, in fact, mainly the interests of foreign finance capital, and primarily aim at securing the debt obligations of the Turkish arbiters.

Measuring Exchange Rate Misalignment in Turkey

The devastating earthquake that struck the most densely populated and industrialized area of Turkey on 17 August, 1999 was one of the most damaging natural disasters during this century. This paper is a first attempt to estimate the transition path of the Turkish economy to its new equilibrium after the earthquake. An applied general equilibrium model is utilized to provide an initial assessment and to obtain the second best policy options to mitigate the negative effects of the earthquake. The analytical foundations of the model rest upon intertemporal dynamics as laid out in neoclassical growth theory. Simulation results suggest that the initial impact of the earthquake on GDP may range from −4.5% to + 0.8% of GDP, conditional upon policies followed by the government and international donors. The policy implication of the paper is that best outcomes might be reaped via a negative indirect tax (a subsidy financed by foreign aid) to individual sectors to recover their capital losses. On the other hand, an indirect tax to finance the extra fiscal spending would result in an output loss, further deepening the impact of the earthquake on the economy.

Is this the end of economic development

Turkey has embarked an extensive dis-inflation and stabilization program in December 1999. The programme exclusively relied on a nominally pegged (anchored) exchange rate system for dis-inflation and on fiscal austerity. In February 2001, however, Turkey experienced a severe financial crisis which necessiated the dismantling of the exchange rate anchor and a switch to a regime of free float. The underlying elements of the disinflation program and the succeeding crisis are discussed in detail in Ertuğrul and Yeldan (2003), Akyüz and Boratav (2002), Yeldan (2002), Boratav and Yeldan (2002), Ertuğrul and Selçuk (2001), Eichengreen (2001), Gencay and Selçuk (2001), and Alper (2001). This article proposes a new methodology to measure exchange rate misalignment for Turkey over the period January 1992 to December 2001. In a single equation framework, the model estimates the real exchange rate within a time varying parameter model, where a return-to-normality assumption about the parameters is assumed. Contrary to common belief, it is found that, except the initial four months of the stabilization programme, the Turkish lira remained undervalued for most of 2000. Also, one observes a pattern where the lira has been overvalued after the financial crisis of 1994 until 1998, and has displayed a tendency of undervaluation after then.