The document provides a history of Turkish economic crises and the country's relationship with the IMF. It summarizes several crises including those in 1929-1931, 1958-1961, 1978-1981, 1988-1989, 1994, and 2009. The crises were typically caused by global factors like recessions as well as domestic issues such as high inflation, currency devaluations, and rising unemployment. Turkey addressed the crises through measures recommended by the IMF such as austerity programs, currency reforms, privatization, and trade liberalization. The document traces Turkey's involvement with the IMF from its early standby agreements in the 1960s to its most recent economic cooperation following the 2009 global crisis.

1. Turkish Economic Crises and IMFEkrem TUFANAssoc. Prof. Dr. (PhD)(Visiting professor)School of Business Administration in KarvinaSilesian University2010

2. ContentsIntroductionA short history of Turkish economic crisesMain economiccharacteristics of the crisesSolutions: History of IMF and Turkey’s relationshipLast economic crisis and Turkish economyConclusionReferences

3. IntroductionWhat is crisis?Etymologically it comes from the Greek language as krisis.In medical science it is being described as adisease which appeared suddenly or reached its last phase.What is economic crisis?It is sudden and unexpected events in an economy which caused bad results on a macro level for a country and on a micro level for companies.

4. Characteristics of a crisisIt is not predictable and happens suddenlyIt creates not just a danger and a threat for individuals, companies and countries but also opportunitiesIt could have short or long term effects. The pace of these effects depends on a country or company’s ability to take correct precautionsIt usually has an epidemic effect so, contamination will occur from one sector to another or from one country to another

5. How can we understand an economic crisis?A huge and fast reduction in productionMany bankruptciesPrices falling sharplyRising unemployment rateWages decliningCollapse of stock exchangeLong depositor queues on front of the banks

6. Reasons for economic crises?The main reason can be excessive supply or shrinking demand in real and/or financial sectors.Balloons! Exmp: US Mortgage balloonNon-economic factors such as political problems, social disorders (Turkey in mid 1970’s) or natural disaster (Haiti, 2010).Capitalism itself!

7. A short history of important Turkish economic crises

8. 1929-1931 Economic Crisis(Great Depression)USA economy hit its peak in 1913Produced almost 33% of the world’s produced goodsExpectation of increase in share pricesStopping capital assets production shortly before the crisisSharp falling share prices and collapse of Wall street on October 29, 1929 (Black Tuesday)

9. 1929-1931 Economic Crisis (World)

10. 1929-1931 Economic Crisis(Turkey-Causes)Modern Turkish Republic was founded by Ataturk in 1923!Downturn in prices for agricultural goods: Bad foreign trade rate, Losing export marketsDecreasing export incomeOver importing to protect economy against possibility of custom tariffsHuge tradebalance deficit

11. 1929-1931 Economic Crisis(Turkey-Results)Starting planned economywith protecting Turkish Lira’s value, balance of payments and balanced budgetBuilding own factories with domestic capitalNationalization infrastructures, railways, mining sector etc.Applying kliring and barter system in foreign trade

12. 1929-1931 Economic Crisis(Turkey-Results)Founding Turkish Central Bank (1930)Growth rate 6.5% (1932)What about the IMF and World Bank relationship?IMF and World Bank have not been founded yet!

13. Turkey and IMF relationship1961 to 1970198319841978 to198020021994199920002005Today

14. Characteristics of IMF ProposalsStructural adjustmentand transformation program which includes:Liberalize exchange rate and financial systemsReducing the state power in economyDeregulation of pricesCease subsidiesPrivatizationMaking the labor force more flexiblePrivatization of social security systemDevaluationIncreasing taxes while freezing wages

15. 1958-1961 Economic Crisis(World)Start of liberal world trade system after World War IIDownturn in agricultural prices after Korean war 1954Recession in USA economyStarted Roma treaty in EU areaMarket shrinking due to convertibility in EU

16. 1958-1961 Economic Crisis(Turkey)High economic growth rate (8-9%) between 1950 and 1954Decreasing agricultural production because of bad weather conditions in 1954Budget deficits due to subsidising agricultural sectorIncreasing pricesWrong structural investments, decreasing foreign credits

17. 1958-1961 Economic Crisis (Results)Devaluation of Turkish Lira (100%)New protection law issued for Turkish Lira valueIncreasing price review applicationsLimitation of bank credits and higher interest ratesBlack market increasedLimitation of money supply and budget expensesLiberal system for importPrice increasing at public goods

18. 1978-1981 Economic Crisis(World)Two serious oil crises 1974 and 1979 StartingPetro-Dollar applications in EuropeShorttermborrowingsLimiting internationalbank loans to developing countrieswith high interest rates

19. 1978-1981 Economic Crisis(Turkey, Causes)Price increasing more than 50%High rate devaluation in 1980Liberated interest rates, consequently high interest rates (more than 100%)Melting exchange reserves of Central Bank of TurkeyHigh inflationrates (almost 100%)Lack of some goods such as margarine, petrol, gas, Turkish cafe, tea etc.

20. 1978-1981 Economic Crisis (Turkey, Results)Military coup! (12 September 1980)Liberal economic decisions=imposed by IMF (1980-1983 stand by contract)TurkishLiradevaluation 100% (1 US $=70 TL)Major increase in price of public goodsStarting liberal interest rates, exchange prices and good prices systemStarting huge export and investment driven applicationsDowngradingprotection for Turkish Money LawMoney convertibility

21. 1978-1981 Economic Crisis (Turkey, Results)After 24 January 1980 Economic Decisions:IMF has given 1.650$ Billion creditAbundance of goods such as tea, coffee, margarine, oil etc.Low inflation rate (30%)Democratic electionsAcceleration of privatizationlaissez faire laissez passerForcing economy to compete with developed economiesNo financial regulations

22. 1988-1989 Economic Crisis(World)Stock market collapsed in 19 October, 1987 (Black Monday)

23. 1988-1989 Economic Crisis(Turkey, causes)Unsteady growthLiberalization of goods importation, consequently decreasing export and increasing importDoubled external debts from 1984 to 1989Stagflation69% inflation rate

24. 1988-1989 Economic Crisis(Turkey, results)6th developing program issued. According to program:Consumption targeted to decrease from 74% to 69%Export rate in GDP targeted to increase from 36.7% to 39.8%External debts targeted to decrease 4,5$ BillionPublic expenses will be decreased and foreign investment will be promoted so, 5,5$ Billion foreign investments expectedExport extended especially to Ex-Soviet countriesTurkish building contractors working in Former Soviet Union Countries

25. Some Macro Economic Data(1980-1990)

26. 1994 Economic Crisis(World)Mexico (peso) economiccrisis (1994)Asian financial crisis (1997)

27. 1994 Economic Crisis(Turkey)Banking crisis!Increasinginterest rates due to increased public borrowingExchange rush: escaping from Turkish LiraExchange prices increased 230% in 3 monthsInterest rates starting to increase from 100% to 1000%

28. 1994 Economic Crisis (Turkey)Howbanking system profited in 1994:Because of over expenditures the state went into the money market and over borrowed. Banks used foreign credits and lent to state (Hot money phenomenon). Get money from the state with interest gain and exchange to US Dollar and/or Euro and paid their foreign credits.How this situation ended?According to IMF rules, TheState took over 19 banks!

29. Some Macro Economic Datas (1991-1995)

30. 1998-2002 Economic Crisis(World)Russian economic crisis (1998)Argentinean economic crisis (1999-2002)Dot-com bubble in USA (2000)

31. 1998-2002 Economic Crisis(Turkey)Russian economic crisis decreasing foreign investmentsDecreasing export to Ex-Soviet countriesIncreasing domestic borrowing interest rates Economic shrinkage (-6.1%)Foreign currency deposits exceeded Turkish Lira deposits

32. 2009 to Today Economic Crisis(World)United States mortgage bubble crisisand world recession2010 European sovereign debt crisis: Greece, Ireland, Portugal, Italy, Spainand Greek CyprusIceland’s economic crisisSome indicators of World Economy…Growth graphics…Growth graphics 2…*Please reach the graphics at www.imf.org

33. EconomicCrisis 2009 (Turkey)In the first half of 2009 export earnings fell by a thirdPrivate investment was similarly affected, falling by a third in the first quarter of 2009Unemployment exceeded 16 percent in the first quarter of 2009 (Last figures shows decreased below14%)

34. EconomicCrisis 2009 (Turkey)The Government announced the followingmeasures on 13 March 2009 in order to easethe effects of the global financial crisis:Consumption tax applied to durable goodsand automobiles to be lowered for a periodof 3 months,Value added tax (Vat) applied to realestates to be lowered to 8 percent from 18percent for a period of 3 months,An additional subsidy of TL 75 million to beextended to SMEs,

35. EconomicCrisis 2009 (Turkey)Resource utilization support fund to be cutby 5 percentage points,Capital of Eximbank to be increased,Discounted night tariff for pricing the use offelectricity in industry sector that applied toweekdays only to be extended to cover alsoweekends and other public holidays

36. EconomicCrisis 2009 (Turkey)Turkish Central Bank took thefollowing measures:• Resumed its activities as an intermediary inthe foreign exchange deposit market until theremoval of uncertainties in international markets(9 October 2008)• Raisedits transaction limits by twofold toUSD 10.8 billion (23 October 2008) andextended the lending maturity to 1 month from 1week in the foreign exchange deposit market(21 November 2008)

37. EconomicCrisis 2009 (Turkey)Adopteda strategy to use foreign exchangereserves to primarily support the foreignexchange liquidity need of the banking systemThe reserve requirement ratio was unchangedat 6 percent in TL liabilities, but it was loweredto 9 percent from 11 percent in foreignexchange liabilities (28 November 2008)Withthis measure, the Bank provided an additionalliquidity of USD 2.5 billion to the bankingsystem

38. EconomicCrisis 2009 (Turkey)• Increased the exports rediscount credit limitby USD 500 million to USD 1 billion in order tocontain the effects of the global crisis onindustry sectors. Additionally, the rules andprinciples applicable to the exports rediscountloan limit were rearranged for rendering the useof these loans easier

39. EconomicCrisis 2010 (Turkey)Turkish Economy Presentation prepared by The Undersecretariat of Treasury http://www.treasury.gov.tr/irj/go/km/docs/documents/Treasury%20Web/Statistics/Economic%20Indicators/egosterge/Sunumlar/Ekonomi_Sunumu_ENG.pdf

40. ReferencesAktan, Coşkun Can, “Ekonomik Kriz”, “Ekonomik Kriz Kavramı”, “Ekonomik Krizin Ortaya Çıkış Nedenleri”, Yeni Türkiye Dergisi, ttp://www.canaktan.org/yonetim/kriz-yonetim/genel-olarak.htmhttp://www.tarihportali.net/tarih/1929_dunya_buhraninin_turkiyeye_etkileri-t9124.0.html;wap2http://kazgan.bilgi.edu.tr/docs/Turkiye.doc

41. Referenceshttp://www.ekodialog.com/Makaleler/Ekonomik_Krizler_son_20_yil.htmlhttp://www.atonet.org.tr/turkce/bulten/bulten.php3?sira=316http://sinestezi.wordpress.com/2009/03/18/turkiye-de-ekonomik-krizler-1986-1988-1989-ve-1991-krizleri/Gafuroğlu Şahin, Ekonomik Krizlerin Küçük ve Orta Ölçekli İşletmeler Üzerindeki Etkilerini Belirlemeye Yönelik bir Araştırma, MBA Thesis, 2007, Çukurova University, http://library.cu.edu.tr/tezler/6724.pdf

42. ReferencesFırat Emine, Ekonomik Krizler ve İstikrar Paketleri Türkiye Uygulaması (1980-2002), PhD Thesis, Selçuk University, 2006, www.yok.gov.trhttp://www.worldbank.org.tr/WBSITE/EXTERNAL/COUNTRIES/ECAEXT/TURKEYEXTN/0,,contentMDK:20630704~menuPK:361720~pagePK:141137~piPK:141127~theSitePK:361712,00.html

43. Referenceshttp://www.treasury.gov.tr/irj/go/km/docs/documents/Treasury%20Web/Statistics/Economic%20Indicators/egosterge/Sunumlar/Ekonomi_Sunumu_ENG.pdf

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