Wobbling but Still on its Feet: The Turkish Economy in the Global Financial Crisis

This paper examines the Turkish economy in a world of current global financial crisis. It shows that Turkey's key economic strengths include relatively prudent fiscal balances and a resilient banking sector. Key economic weaknesses include non-financial private sector foreign debt rollover risk, substantial household indebtedness where the unemployment rate is rising, an overvalued Turkish lira with its potential for rapid depreciation, and contracted growth and demand for Turkish imports. Turkey needs formal and informal institutional flexibility to prioritise social welfare spending and fixed capital investments by the public sector, rather than an exclusive preoccupation with price stability via monetary and fiscal discipline. Keywords: Turkeyeconomycrisisglobalisation Notes [1] However, the SDIF collected only US$6.3 billion as of the end of 2006 (SPO Citation2007, p. 97). [2] For similar assessments on Turkey, see JP Morgan (Citation2008a, Citation2008b). [3] On the role of ideas and discourse in institutional change and persistence, see Schmidt (Citation2008); Hall (Citation1989). [4] The balance of payments identity states that the current account is the sum of capital account, financial account and net errors and omissions. Factors behind such a phenomenal increase in net errors and omissions in Turkey remain a mystery and deserve a satisfactory official explanation. [5] The CAR declined from 25.1 per cent in 2002 to 16.8 per cent in September 2008. The recent decline in the CAR was due to increased bank loans and increased weights for letters of guarantee and letters of credit imposed in January 2008. It should be noted that the CAR will fall further with the full application of the Basel II standard depending on the size of foreign currency Turkish government securities holdings which will be the 100 per cent risk weight. [6] For an assessment of the impact of instituting ‘blank guarantees’ in 1994 and 2001, see CitationTanyeri (forthcoming). [7] It seems that this was partly due to the lack of a legal framework securitising mortgage laws until March 2007. Further, the housing loans accounted for only about four per cent of GDP in September 2008 (BRSA Citation2008). This ratio was also well below other South European countries (European Central Bank Citation2008). [8] The same figures for 2008 and 2009 quoted by the Central Bank are mistaken (see CBRT Citation2008, p.19). [9] For a detailed political economic assessment, see Öniş & Bakir (Citation2007).