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In the contemporary globalised financial economy, unexpected instabilities can cause harmful turmoil. One of these was witnessed in Turkey, in the 19th of February 2000, when the Prime Minister Bülent Ecevit and the president Ahmet Necdet Sezer went into a political dispute in a meeting about a corruption investigation. After the tense meeting Mr. Ecevit gave a negative speech about the president to the reporters, and then everything was like a pileup. The political turmoil first affected the financial markets. The stock market collapsed, the currency devaluated harshly, interest rates rocketed to %1.950 and the share prices fell %50 on the Istanbul Stock Exchange. In addition, nearly $6 billion left Turkey in a few hours which made banks stop loaning each other in cash. Therefore, the government had to intervene and the Turkish Central Bank injected billions to keep the financial markets working. For sure the impacts of the crisis were not only sudden and short terms. The extremely high interest rates affected the banks and institutions in the long run when they have to repay their debts. Several banks, such as Demirbank, went in to receivership in these conditions. The economic crisis didn’t only affect the banks but also the brokage companies and many other businesses. As investment and production became hopeless, businesses either closed down or lost the capacity to accommodate their employees; therefore unemployment increased heavily. As Jon Grovett reported: “January 2001 figures released by the Confederation of Turkish Employers Unions (TISK) showed that between July 1999 and November 2000, some 8,123 businesses had shut down countrywide. Job losses over the period were estimated at around 100,000.” In addition, the growth rate expectations could not be met and revised downward. The expectations about the inflation rate were not also met as Gorvett emphasizes: ‘Predictions for the end of year inflation rate have also risen though, with December 2000 wholesale price index growth showing an official overall level of 39 per cent inflation for the year 200 -- nearly 15 points above the government's target.” Finally, with the increasing rates of inflation government had to devaluate the Turkish lira and as Central Bank realized that it was running out of cash, the International Monetary Fund came to help with a $7.4 billion loan. Since the crises in 1994 Turkey hasn’t witnessed a worse economic turmoil. It was clear that the main reason was not the last moment political dispute, but it was only the last stone that caused the overflow. With this crisis, Turkey started to realize and see the structural economic problems that it pretended not to see before. In fact, the February 19th can be suggested as a turning point not only by causing a serious turmoil; but also by bringing structural changes in to the Turkish economy especially with the traditional anchor, the International Monetary Fund, in order to cure the problem. This new period would be a challenging venture both for Turkey and the IMF. Turkey would enter a period that it has to bring long term stable solutions to its economic problems, and the IMF would take the most critical responsibility since the Russian and Asian crisis while facing criticisms all over the world. First of all, the reasons of the 2000 and 2001 crises, both long and short term, should be highlighted to be able to understand the impacts of the crises and the role of IMF in them. The problem of banking sector is a major point to be emphasized as a reason of the crises of 2000 and 2001. At one side of this problem there are the public banks and their duty loses that is an important source of the February 2001 crisis. In Turkey, public banks have a large share of %40, where as in most middle income countries with the privatization of the banking system, this ratio is low. In a system where the public banks play a dominant role, the duty loses create problems. For example, when Ziraat Bank provides subsidies to agricultural sector, it mobilizes its resources by offering high interest rates. However, when offering credits to the agricultural sector, it makes politically pressured lending with low interest rates; therefore creating distortions. As Þebnem Oðuz emphasizes: “The public banks, it was argued, were distorting competition for "healthy private banks" by offering high interest rates while accumulating losses by distributing subsidies to farmers, small enterprises and urban housing projects.” To finance this gap is the duty of the treasury; but when the treasury didn’t finance the gap rapidly, these delays cause heavy and costly borrowing for the public banks. This problem is also due to the lack of transparency in the budget which underestimates the problem of duty loses. The other side of the banking sector problem is about the private banks. First, the open position of private banks which means borrowing foreign currencies at high interest rates made the banks vulnerable to speculative attacks. Since banks are underregulated, they follow a risky path, especially the small banks which want to increase their shares. Another important problem with the private banks is that they have been formed without fulfilling the necessary conditions. The reason for this is the politicization of the new bank entries. This creates a risk for the new bank and leads the collapse of the bank in a short period of time. Finally, the use of connected lending to finance their parent companies creates distortions especially for the small banks and cause bank failures. The editor of the financial daily, Dünya, Ýsmet Özkul points this out: “Many of Turkey’s banks are part of larger groups or holding companies. These groups used the banks to finance their other operations through a massive system of bad loans.” These three sources of disequilibrium in the banking system of late 1990’s can be shown as the major causes of the November 2000 crisis and the bank failures in 2001. Another major factor preparing the 2000-2001 crises is the problem of privatization. There are several reasons that block the privatization program of Turkey. First of all, there is the lack of continuity in the program, and the delays become costly. Once an enterprise is decided to be privatized, then delays affect the morale, reduce its market value and shake the confidence of the managers. In Turkey, the government’s commitment to its own privatization program is doubtful. Jon Gorvett explains this: “Major state institutions have been earmarked for sell-off for some time, with little being done. Partly this is the result of a political deadlock between the tripartite coalition government parties; the far-right nationalists of the National Action Party (MHP) are suspicious of foreign interests taking over strategic industries, the left-leaning Democratic Left Party (DSP) worries about job losses; while the third group, the centre right Motherland Party (ANAP), is more broadly in favor, but is widely mistrusted.” Another reason was the weakness of the legal framework until the 1994 privatization law. In addition, there is the lack of attention given to competition and a regulatory framework for this. We can only witness the activation of the Competition Board in February 1998, and it is clear that privatization isn’t possible without a prior improvement of the board. Finally, the government tradition in Turkey of focusing on increasing cash revenues rather than improving efficiency creates problem. Therefore, Turkey’s massive state sector continues to exist as the populist governments of the 1980’s and 1990’s continued to give subsidies and increase wages rather than privatizing and cutting payrolls. On the other hand, when the history of Turkish economy is considered, state’s role has always been major in Turkish economy. The base of Turkish economy in 1920’s and 1930’s as a command economy prepared the ground for today where %50 of the land and nearly %60 of economic activities are directly or indirectly run by the state. With the Özal period economy started to liberalize, however compared to the East European countries, Turkey was in the beginning. Since the beginning of the 1990’s those countries mostly completed their privatization where as Turkey was having difficulty to sell a small number of the State Economic Enterprises. There were also other explanations to Turkey’s 2000 and 2001 crises such as the one that emphasizes the adoption of liberalization policies in spite of the structural weaknesses of Turkish economy. Þebnem Oðuz points this out: “With the transition to the convertibility of the Turkish lira in 1989, huge amounts of short-term foreign capital poured into the country, where the interest rates were higher than in advanced capitalist countries.
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