Abstract:
Thanks to policies that were put into practice after the 2001 crisis, which constitutes a turning point for Turkish economy, fiscal discipline was restored, single digit inflation was reached, and yet growth rate was doubled compared to the previous decade average. As a result investment climate improved and the economy benefited from substantial amount of foreign direct investment and other long-term capital inflows. However these developments had some adverse side effects as well. Real appreciation of domestic currency, deterioration of trade balance, and increasing private indebtedness generated vulnerability for sudden stops. Beside, increasing global integration and very rapid shift in the economic circumstances caused difficulties for traditional sectors. This paper analyzes the Turkish experience after 2001 and identifies underlying dynamics of the restructuring program, while denoting the costs of this transition. Turkish case provides evidence in favor of disinflation programs combined with sound fiscal policies in spite of some adverse effects in the short run.
