Macroeconomic Policy: Stability,
Growth, External Balance and Debt
Sustainability
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Group 15
Adem Yaşlı
Emina Nokic
Emir Spahic
Furkan Sarıkaya
Gökay Aytekin
Özgen Kıribrahim
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Outline
Early republic era (1923 - 1945)
◦ 1923 - 1929
◦ 1930 - 1939
◦ 1939 - 1945
After war period (1945 - 1960)
◦ 1945 - 1953
◦ 1953 - 1960
A domestic oriented economy (1960 - 1980)
An outward oriented economy and transition to neoliberalism (1980 - 2001)
◦ 1980 - 1988
◦ 1989 - 2001
Years with AKP (2002 - 2015)
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Early Republic Era
● Stable Growth by Agricultural Production (1923 - 1929)
● Stable Growth by Industrialization (1929 - 1939)
● War Years and Shrinking Economy (1939 - 1945)
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1. 1923-1929
Crucial points in this period
◦ Abolition of the ASAR tax
◦ Low tariff rates because of Treaty of Lausanne
◦ Partially liberal era
◦ Export of agricultural goods
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The Sources of Growth
Increase in agricultural production
Expanding market for agricultural products both inside and
outside
◦ International Division of Labor
◦ Restructuring after the war
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Debt Sustainability 1923 & 1929
Laussane Treaty
◦ Agreement to reduce debt from Ottoman Empire by the proportion of
land separated
◦ 62.25 % of debts before 1912, 75.54% of the debts afterwards left to
the newly formed Turkish Republic
Great Depression ,as a result Turkey stopped paying its debt
Meetings in Ankara 1930,1931 ,meetings in Paris 1932, maturity of debt
installments increased from 30 to 50 years.
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2. 1929-1939
Etatist Policies
Effects of Great Depression
Declining agricultural terms of trade in terms of other goods
Started Debt Payments of Ottoman Empire
Avarage Tariffs increase from 13 percent to 46 percent
Protectionist Policies
Resources flow from agricultural area to manufacturing sector
Five years plans
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The Sources of Growth
Improvement of industry
◦ Protectionist policies
◦ Lower agricultural prices and lower wages
◦ Infrastructure investment by State
Great performance of agricultural sectors despite of declining prices
◦ Why?
◦ Started to using idle land
◦ Increasing population
◦ Abolishment of the ASAR
◦ Behavior of the farmers
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Debt Sustainability 1929 & 1939
Internal:
◦ 1933 First Loan
◦ First loans made for
industrialization and
development
◦ Loans used for
railways in
1934,1938
● External:
○ 1930 First Loan from US
■ For economic
instrumentation, $10 million
○ 1934 from Soviet Union
■ To finance 5-year
Industrialization plan
■ Used for building of some
factories and investment
○ 1938 From England, £16 million
■ For military expenditures &
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pay other external debt
3. 1939-1945
World War 2 Years and Shrinking Economy
◦ Increasing Expenditure of Army
◦ Hard to import industrial input
◦ Decrease in labor force because of recruiting
◦ So production decreased
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Debt Sustainability 1939-1945
Internal:
Railway Loan in 1941, 85 million TL
National Defence Loan in 1942, 150
million TL
External:
External debt increased by 266% at the
end of WW2, in comparison to 1939
Long term external debt 365 million
liras in 1945
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Post-War Period - 1945-1960
1945-1953
◦ Average Growth Rate, 8.7 %
Sources Of Growth
Agricultural Growth afforded by Marshall Aid
◦ Cultivated Land increased by 50%
◦ Mechanization in Agricultural Production
Good Weather Conditions
Terms of Trade improved by 50%
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Post-War Period in 1945-1960
1953-1960
◦ Deceleration of Growth
◦
◦
◦
◦
◦
◦
End of Marshall Aid and Good Weather Conditions
Decrease in International Agricultural Prices
End of the Korean War
Monetary Expansion by Populist Policies in Demoratic Party
Exchange Crisis and Devaluation
◦ Decrease in Import Volume
Unconscious Import Substitution Industrialization
◦
◦
Because of the slower growth & a decrease in import volume due to exchange crisis
Infrastructure Investment and Internal Migration
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Debt Sustainability 1945-1960
Marshall Aid
◦ 1948-1952
◦ Agricultural Aid
1950-change in debt structure
1958 -Turkey requested moratorium
End of 50s-debt stock 277 million TL;
End of 60s-10 billion 138 million TL
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● 1946-150 milion TLtreasury bonds for
Development Loan
● 1947 250 milion TLtreasury bonds for
consolidation of previous
loans
● In 1953,
○ The end of Marshall
Aid
■ government
borrowed from
internal market to
close budget
deficit.
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Planned Economy (1960-1980)
State Planning Organization in initial years of the period
◦ Eliminating BoP deficit
◦ Increasing industrialization
Coalition Governments
Import Substitution Industrialization
◦
Protectionist Policies
Emigration of Labor
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Planned Economy (1960-1980)
Sources of Growth(1962-1976)
62-76 average growth 6.8% (Boratav) That is relatively successful.
◦ Industry Growth by 9.8%
◦ Agriculture Growth 3.9 %
◦ Service/GDP sharply increased from 60 to 76.
In spite of sharply growth in industry, the share of industry in GDP did not change
dramatically because of the lower international prices of industrial goods.
◦ Developing countries started to industrialization in that age. That might reduce the prices
of industrial products.
The existence of a public enterprise system with the strategic role of producing cheap
intermediates through artificially low (Lower wages)
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Planned Economy (1960-1980)
1977-1980
The End of The Rapid Growth
Average GDP Growth Rate 0.5%
Average Inflation Rate 59.5%
CRISIS
◦ Oil crisis
◦ The end of the emigration
◦ Social and political instability
◦ Cyprus Peace Operation and American
embargo lead to expenditure of foreign currency.
Short-term borrowing with high interest rate
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1977 Crisis
We need 70 cent
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Debt Sustainability (1960-1980)
External:
◦ Need for external financing
◦ Consortium 1962
◦ End of 1960 external debt
1138.6 million ,debt growth
rate 123%
◦ 1970s problems with external
payments
◦ 1973 crisis negative effect
● Internal:
○ Tax income not enough to cover public
spending of targeted development plan
■ Increasing public debt
■ Long-term debt instruments: saving
bonds, loan bonds,consolidation bonds
■ 1970-1980
● Period of increase in internal debt
● Funds raised mainly by bonds
,mostly sold to commercial banks
● Main reason: citizens’ saving low and
uninterested in buying bonds
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Neoliberal Era (1980 - 2001)
The collapse of Bretton Woods System
◦ Break up of fixed exchange rate
Rise of oil prices
Transfer from Keynesian policies to Neoliberal policies
◦ Market-oriented policies
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Cutting of public spending
Abandon of Welfare state policies
Privatization
Decrease in state intervention
Free market
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Neoliberal Era (1980 - 2001)
24 January Decisions by Turgut Özal
◦ Trade Liberalization
◦ improving BoP
◦ Devaluations
◦ Export Subsidies
◦ Cutting agricultural Subsidies
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Neoliberal Era (1980 - 2001)
1981 - 1982
◦ Post-crisis adjustments
◦ Growth by 4,2%
◦ Agricultural growth by 0,6
◦ Manufacturing growth by 7,2
1983 - 1987
◦ Turgut Özal Govenment
◦ Growth by 6,5
◦ Agricultural Growth by 0,8
◦ Manufacturing Growth by 8,6
GDP per capita increases every year by 3,2% between 1980 and 1987
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Neoliberal Era (1980 - 2010)
1988
◦ 2,1 % Growth
◦ Exhaustion period
◦
the political and economic limits of export subsidies
1989-1993
◦
◦
◦
◦
◦
Capital acount liberalization
Full convertibility of Turkish Lira
Populism again
Increasing fragility of domestic financial markets
Growth by 4,8 %
◦
◦
agriculture 0,1 %
manufacturing 6 %
dependency of growth to “hot money”
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Neoliberal Era (1980 - 2001)
The Sources of Growth
Export led growth
◦ During 1983-87 export revenues increased at an annual rate of 10.8%
◦ devaluations of the currency
◦ export subsidies
Decreasing wages and agricultural prices
◦ The share of wage-labor in manufacturing value added declined from an average of 35.6% in
1977-80, to 20.6% in 1988
◦ the effect of military coup
◦ shift from domestic oriented IS to export led policies
Gross fixed investments of the private sector increased by 14.1% during 1983-87
◦ The rate of growth of private manufacturing investments has been only 7.7.% per annum
◦ Housing investments expanded by an annual average of 24.5% during 1983-87
◦ Investments oriented to housing rather than manufacturing
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1990s
Capital Account Liberalization
Short term speculative capital movements
Economic growth became dependent to hot money
◦
The mechanism shift from Growth - Current Account Deficit - Capital Inflows to Capital
Inflows - Growth - Current Account Deficit.
Why capital accounts liberalization led growth dependent to hot money.
◦ The Share of Government in financial sector remained high
◦ populism
◦ coalition government
◦ elections
◦ Foreign capital cannot directed to productive sector
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Debt Sustainability 1980-2000(External)
1983-1984 recession
◦ Drop in investment and foreign capital flow
◦ Foreign exchange crisis
◦ ‘heavy debtor’
Turkey compansated external debt by export revenues
Public expenditure increased due to populist policies
◦ it has afforded mostly by internal market
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Debt Sustainability 90s
1990 effective economic policies on external debt
1994 lost in economic stability
April 5th 1994 ‘stability decisions
The problem of external debt due to the lack of domestic savings
paid to debt with debt
◦ getting cheap fund from external market
◦ Increasing debt stock lead to lower credit notes. So, finding new
debts has became harder.
◦ Crisis
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1990 onwards short and long term
bonds frequently used as debt
instruments.
1993 decrease in interest rate
◦ one of the reasons for 1994 crisis
◦ increase in internal debt problem
Enormous increases from 1990 to
1995 up to 2000
Increase of debt stock ratio to
29,3 in 1999 due to high public
spending and interest rates-crisis
in 2000
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Debt Sustainability
total external debt 119 billion $ in 2000
high inflation in 2000
policies proposed by IMF and implemented lead to 2001 crisis
30 billion $ in 2002
IMF:Transfer of 2.9 billion funds,amount increased to 10 billion $ in 2001
2006 increase in private sector borrowing
Short Term Debt Increase
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2001-2015
Results of 2001 Crisis
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◦
◦
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Devaluation
Capital outflow
High interest rate and high inflation
High unemployment
Kemal Derviş’s Aims
◦ Budget surplus rather than budget deficit via fiscal discipline supported by IMF
◦ Stabilizing inflation by reducing devaluation of TL
◦ Enhancing the power of the Central Bank
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AKP Government (2002-2015)
2002-2007
◦
Implementing the reforms and policies of the coalition government
◦
Promoting new industrialists ( Anatolian Tigers)
◦
Engaging in EU with fiscal discipline
◦
Average annual growth in GDP per capita = 6.8%
◦ Focusing on inflation rather than growth
Recovery Age
Higher consumption tax for the budget balance
Public Sector Debt in GDP from 90% in 2001 to 40% in 2010
◦ Important source = Privatization
◦ Important result = Stabilizing inflation
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AKP Government (2002-2015)
2002-2007
◦ EVALUATION
◦ Results of the Fiscal Discipline
Sharp decrease in budget deficit
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AKP Government (2002-2015)
2002-2007
◦ EVALUATION
◦
Decrease in Public Debt Stock
◦
Because of the decrease in
external debt stock rather than
internal debt stock
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AKP Government (2002-2015)
2002-2007
◦ EVALUATION
◦ High growth (average 6.8 %)
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AKP Government (2002-2015)
2008 Crisis
◦ 2008-2009 annual growth rate: - 4.7 %
Factors Limiting The Effects of The Crisis
◦ Powerful banking sector from the experiences in 2001
◦ Fiscal discipline and low public sector debt
◦ Financing external deficit with liquidity
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AKP Government (2002-2015)
2008-2009
◦ EVALUATION
Low inflation because of the
fiscal discipline
Low growth
Higher budget deficit/GDP
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AKP Government (2002-2015)
2009-2014
Slower Growth
◦ International Recession
◦ Erosion in institutions
◦ Higher Inflation(8-9 %)
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Debt Sustainability 2002-2012
External:
◦ Turkey's total external debt to GDP ratio in 2002 56%, in 2014 50% (on border)
◦ Short term debt increased after 2002
◦ 2012 debt 226billion dollar ; ⅔ belonging to private sector
◦ April 2013 debt 43% of GNP
◦ 2012-2013 210 billion $ new foregin loans; debt increase by 162%
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Comparison with the average growth
rate of developing countries
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Bibliography
Şevket Pamuk - Türkiye’nin 200 Yıllık İktisadi Tarihi - İş Bankası Yayınları
Korkut Boratav - Türkiye’nin İktisadi Tarihi 1908 - 2009 - İmge Kitap Evi
World Bank Data Base
Maddison Project - Gdp Per capita and Growth Rate http://www.ggdc.net/maddison/maddison-project/home.htm, 2013 version.
Korkut Boratav, and Yeldan, E., 2001. Turkey, 1980-2000: Financial Liberalization,
Macroeconomic (In)-Stability and Patterns of Distribution
E. T. Karagöl, “Geçmişten Günümüze Türkiye’de Dış Borçlar”, Ankara, SETA Analiz Dergisi,
2010, pp.5-6. http://file.setav.org/Files/Pdf/gecmisten-gunumuze-turkiyede-disborclar.pdf
Turkey Data Monitor - http://turkeydatamonitor.com/
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Thanks for Listening...
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