POLITICAL ECONOMY OF
TURKEY
The periods are determined according
Period
Policy Phase
1923-1949
Single party era; postwar
recovery, etatism and second
world war
1950-1959
Liberalization and agriculturebased integration to the world
economy
1960-1979
The neo-etatist era; importsubstituting industrialization and
natural developmentalism under
five year plans
1980-2001
Neo-liberal restructuring and
deregulation in the age of
Washington consensus;
liberalization and integration into
the world economy
2002 and beyond
Regulatory neo-liberalism in the
age of post-Washington
consensus; the growing power of
independent regulatory agencies
to the dates of the major economic and
political milestones.
The focus is on political and economical
consequences of these crises and
policy shifts caused by them.
1923-1949
1923-1929, Postwar recovery
Agriculture dominated production
Industrialization, based on private entrepreneurship
Government intervention whenever necessary
Open economy
1930-1938, The Great Depression and Etatism
Protectionist-etatist era
Implementation of ISI policies
Control over monetary policy and balanced budget
First five-year plan
The effect of the Great
Depression on the prices of
agricultural goods was bigger and
lasted longer than the effect on
the prices of non-agricultural
goods, hence the external terms
of trade of Turkey deteriorated.
The government reacted to this
situation by obtaining greater
control over foreign trade and
production mechanisms.
1923-1949
1939-1945, Second World War
Decrease in labor force and production
Extensive government intervention
Generation of funds through new taxes
1946-1949, Liberalization of economy
Removal of trade restrictions
Devaluation of TL
Huge amount of foreign funds and government credits
Involvement in the Truman Doctrine and OECD
Effects of Great Depression and WWII
1950-1960
1) 1950-1954
2) 1954-1960
1949-1951
TRUMAN DOCTRINE & MARSHALL PLAN
The official mission statement:
To give a boost to the Europe economy, to promote European production, to
bolster European currency, and to facilitate international trade, especially with
the United States, whose economic interest required Europe to become
wealthy enough to import U.S. goods
The unofficial goal:
The containment of growing Soviet influence in Europe, evident especially in
the growing strength of communist parties in Czechoslovakia, France, and Italy.
A landmark in the Turkish economics and politics
1949-1951
TRUMAN DOCTRINE & MARSHALL PLAN
Conditions laid down to make use of the plan:
× Public Entreprenurship
 Private Entrepreneurship
× Heavy Industry (iron-steel, heavy chemical etc.)
 Industrialization based on agricultural products
 Highway construction
1946-1950
• A landmark in the Turkish economics and politics
TRUMAN DOCTRINE & MARSHALL PLAN
The devaluation of 1958 was followed by 1960 military coup
Source: The Marshall Plan Fifty Years Later, Palgrave MacMillan, United Kingdom, 2001
Source: Economic and Social Indicators 1950-2014
No Value Added Products exported (Agricultural and Raw Products only)
Source: Economic and Social Indicators 1950-2014
1954-1960
• BOP Deficits, Import Dependency, Slowing Rates of Growth,
Interventionism and Authoritarianism
Disguised ISI Period, IMF Agreements and the Coup
-Frustration of International Accounts, Less FDI and Exports
-Restrictions on Trade
-Using fiscal, monetary tools to keep its popular support
-Inflation rise (almost 100 % between 1955 and 1959)
-1958 IMF Agreement Devaluation and withdrawal of restrictions
-Authoritarian policies culminates in military coup in 1960
Increase in Bank
Ms(%) credits
1952
9.6
2620
1953
16.5
3429
1954
3.1
4311
1955
31.5
5062
1956
29.2
5885
1957
26.6
7849
1958
3.6
8737
1959
11.5
9511
1960
12.3
9640
Decreasing Volume of both Exports and Imports
Source: Economic and Social Indicators 1950-2014
Increasing Number of Manufacturing due to disguised ISI-period after ‘54
Source: Economic and Social Indicators 1950-2014
Key Words
1960-1980
Military Coup & Shift in Economic Policy
Import Substitution Industrialization
State Planning Organization
Five-Year Plans
Coalition Governments
State Economic Enterprises
Poor growth performance after a postwar expansion of 46-53 period
Fiscal and BOP crisis towards the end of 50s.
1960 Military Coup
IMF stabilization program
The success of the previous “planning based programs”
Unsustainable liberalization of 50s
The devaluation of 1958 was followed by 1960 military coup
ISI & SPO
1960-1980
61-65, Coalition governments under İsmet İnönü
First five-year plan
65-71, Justice Party
Reasonably good growth but not sustainable
Targets other than growth were ignored: saving, employment etc.
1970-devaluation of the Turkish Lira
1971 semi-coup occurred while
there were no deep economic
crisis (compared to end of 50s),
highlighting the fragile
relationship between the
economics and the politics in
Turkey.
1971 Military Intervention
The devaluation of 1970 was followed by 1971 semi-coup
1960-1980
1973-1980, Coalition Governments
Short duration of governments & parliamentary chaos
Weak performance, low growth, rising instability
More complex phases of ISI & deepening crisis of the ISI model
Development plans were ignored
Oil crisis in 1973 & 1979
The emerge of the informal economy
Compared to single-party
governments, coalitions have
difficulties to ensure political
stability & thus long-term
economic growth. But, the
problem lies not with coalition
governments per se but with
the quality of democracy in
Turkey.
1980 Military Coup
The economic & political instability of coalition governments was followed by 1980 military coup
1980-2000
• January 24 Decisions
• September 12 Coup
• November 1982 => Constitution!
• 1983 => New Elections
• Washington Consensus, 1989
• Political instability
• Crisis in 1994
• Coalitions until 2002
“…..24 Ocak kararlarını destekleyen
TÜSİAD Üyesi Rahmi Koç, Odalar Birliği
Başkanı İbrahim Bodur gibi ünlü iş
adamları gazetelere 24 Ocak kararlarının
yıldönümü vesilesiyle vermiş oldukları
demeçlerinde 12 Eylül darbesi
olmasaydı 24 Ocak kararlarının yaşama
geçirilemeyeceğini açık açık dile
getirmişlerdir.”
Political power over
economic policy
2002-Present
2002,Derviş Reforms
Floating Exchange Rate Regime
Reducing the uncertainty in the Banking Sector
Stabilizing the currency and interest rates
Balancing the macroeconomic equilibrium and installing
proper atmosphere to induce growth
AKP Government
Even though Kemal Derviş has
been impeached as an
economic hit man by most of
the nationalist/conservative
politicians, his policies consist
the infrastructure of the long
lasting stability of Turkish
Economy.
2002-Present
2002-2009, Golden Age of AKP
Single-digit level inflation
Global liquidity environment
High growth rates and increased purchasing power
Increased social expenditures
Huge privatizations
Financial Crisis
After long years of financial
instability and unending cycle
of crises, an era of expansion
has begun. Also foreign capital
inflow has increased with the
pro-western image of AKP
government.
2002-Present
2009-Present, Middle Income Trap
Decrease in the growth rates
Lack of Innovation
High youth unemployment
Protests and Corruption Crisis
Depreciation of TL
Syrian Civil War and Refugee Crisis
Period of Instability
After the Great Recession
Turkish economy has lost its
inability of performing high
growth rates. Also, with the
Gezi Protests, Corruption Crisis
and several problems in the
Foreign Policy image of the AKP
government has changed in the
world public opinion
2002-Present
Distribution of Wealth
Anatolian Tigers
Proportional Change in Public Spending
Suspicious Privatizations
Corruption and Bribery Scandals
Seizure of Banks and Companies
Appointments by Government in Private Companies
Even though AKP Government
considered as neoliberal by
most of the leftists in Turkey
and rest of the world