TÜRK EKONOMİSİ - Deneme Sınavı - 3

A financial crisis is often associated with one or more of the following phenomena (Claessens and Kose, 2013, 4-5): • Substantial changes in credit volume and asset prices. • Severe disruptions in financial intermediation and the supply of external financing to various actors in the economy. • Large scale balance sheet problems (of firms, households, financial intermediaries, and sovereigns). • Largescale governmentsupport(in theform of liquidity support and recapitalization).

Financial difficulty or a financial crisis leads to a serious deterioration in the real economy (on the production and distribution side). While financial-economic crises have common consequences such as economic downturn, unemployment, and corporate bankruptcies, many factors can cause financial crises

When the financial system does not perform its fundamental function effectively, certain bottlenecks occur, resources cannot be transferred to productive areas and the production capacity of the economy falls (Mishkin, 1996, 2). Consequently, financial difficulty or a financial crisis leads to a serious deterioration in the real economy (on the production and distribution side).

The currency crisis is the sudden and significant decline in the value of national currency

The Second Generation of Crisis Models was developed after the collapse of the European Exchange rate mechanism crisis (1992-1993) and the Mexican crisis (1994-1995) that cannot be explained by the first generation of crisis models.

These measures are called stabilization programs, and when governments get financial support from the International Monetary Fund - IMF, the IMF asks governments to comply with various stability programs that are regulated by the IMF.

Turkey launched various stabilization programs in 1958, 1970, 1978-1979, 1980, 1994, 1999, and 2000-2001 to overcome the economic crises.

The difference of the 24 January 1980 decision from the previous ones was to abandon the import substitution industrialization policy and adopt the export-oriented industrialization policy and to minimize government interference in the economy by making the free market economy work in the Turkish economy

Incentives were given to increase export revenues.

The 2008 global economic crisis also known as the global financial crisis arose when subprime mortgage loans, which were opened to low-income people in the USA in 2007, began to default at a high rate. These defaults caused a high rate of foreclosures, deteriorated banks’ balance sheets and caused a credit crunch where the banks became short of funds. As a result, the banking crisis occurred in the USA and with the collapse of the investment bank Lehman Brothers in September 2008, it turned into an international banking crisis. Soon after, it affected the whole world.

The sovereign debt crisis is the government’s failure to pay internal and external debts belonging to the public and private sectors.

It is often called sudden stop or capital account or balance of payments crisis. A currency crisis involves a speculative attack on the currency resulting in a devaluation (or sharp depreciation), or forcing the authorities to defend the currency by expending large amount of international reserves, or sharply raising interest rates, or imposing capital controls.

The currency crisis is the sudden and significant decline in the value of national currency. The currency crisis is also called balance of payments crisis.

A financial crisis is often associated with one or more of the following phenomena (Claessens and Kose, 2013, 4-5):

• Substantial changes in credit volume and asset prices.

• Severe disruptions in financial intermediation and the supply of external financing to various actors in the economy.

• Large scale balance sheet problems (of firms, households, financial intermediaries, and sovereigns).

• Large scale government support (in the form of liquidity support and recapitalization).

Claessens, S. & Kose, M. A. (2013). Financial crises explanations, types, and implications. International Monetary Fund Working Paper No. 13/28.

Governments take various measures to eliminate or at least reduce the negative effects of economic crises on the economy. These measures are called stabilization programs.

The November 2000 and February 2001 crises emerged in Turkey as extension of the Southeast Asia crisis in 1997 and the Russian crisis in 1998

Heterodox economic policies are used to refer to an unusual policy that is slightly different from the market economy, rather than the usual economic policies. The orthodox stabilization program has many disadvantages, such as failure in disinflation and its costs that cause severe decreases in economic growth. Therefore, the heterodox stabilization programs implemented in chronic high inflation countries, especially in Latin American countries in the mid-1980s, to overcome high inflation and debt crisis. Heterodox stabilization programs implement tight monetary policy, tight fiscal policy that is also launched in orthodox stabilization programs, and temporary income policies (what is meant by the income policy is the control of wages and prices for a certain period of time) to achieve rapid and sustained disinflation. In other words, heterodox stabilization programs are a combination of orthodox stabilization programs and income policies (Kiguel and Liviatan, 1992, 36).

Failure of the stabilization programs proposed by the IMF to ensure stability after the economic crisis in developing countries led to the questioning of the IMF since, contrary to the expectations, the proposed programs deepened the economic crisis (Bayraktutan and Özkaya, 2002, 2). Countries that are experiencing an economic crisis try to overcome it by implementing IMF-supported stabilization programs under the supervision andtechnical support of IMF which is also known as IMF stand-by arrangement that is based on tight monetary, tight fiscal policy and privatization within the framework of ‘Washington Consensus’.

Speculative attacks occurred as a result of the member states’ being unable to agree on a common monetary policy, and in 1992 the European Exchange Rate Mechanism (ERM) faced with crises. As a result, the UK and Italy’s foreign exchange reserves significantly decreased, Italy broadened its’ currency bands and the UK withdrew from the ERM.

To eliminate instability and destruction caused by the crises of November 2000 and February 2001, the ‘Transition to the Strong Economy Program-TSEP’ was launched on April 14, 2001.

The sub-targets determined to reach the main objectives in TSEP can be listed as (CBRT, 2001, 12-13):

In the floating exchange rate system, combatting and decreasing inflation continuously and decisively.

Rapid restructuring in the banking sector, thereby strengthening the relationship between the financial sector and the real sector.

Permanently strengthening the public financing balance.

Creating an income policy, where the relations between employees and employers are determined based on compromise, and wages and salaries are determined in line with inflation.

Establishing the legal infrastructure that provides transparency and efficiency in the state.

Therefore, it was aimed to make 15 legal regulations in the following four areas within the framework of TSEP (CBRT, 2001, 13):

• Restructuring of the financial sector.

• Increasing transparency in the state and strengthening public finance.

• Increasing competition and economic effectiveness.

• Strengthening social solidarity.

CBRT (The Central Bank of the Republic of Turkey). (2001). Türkiye’nin Güçlü Ekonomiye Geçiş Programı. Viewed on: 12.12.2019, available at: https://www.tcmb.gov.tr/wps/wcm/connect/ daea59cb-6b14-498f-9b4a-87e8aa58cbbe/ program+%281%29.pdf?MOD=AJPERES&CA CHE=NONE&CONTENTCACHE=NONE.