TÜRK EKONOMİSİ

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.

According to a general definition, the economic crisis is the deterioration in an economy that occurs unexpectedly and with great severity which significantly affects the economic activity. More precisely, the economic crisis is the unexpected and severe deviations in real and financial indicators.

A financial crisis is often associated with one or more of the following phenomena :

But there are not and increases of investment of the firms and probably unemployment rate increases during financial crises

Financial crises take place in various ways, and there are four different financial crisis definitions depending on the source to distinguish them. These are currency crisis, banking crisis, systemic financial crises, and sovereign debt crisis. Interest rate crises is not one of them.

In addition to the speculative attacks on the currency, the inability to finance the current account deficit causes the currency crisis.

According to the balance of payments definition which is a statistical report of all transactions between a country and the rest of the world over a period of time, the sum of all transactions recorded in the balance of payments must be zero, so deficits in the current account must be financed by net capital inflow.

The banking crisis may arise from the institutional structures of banks, namely their high leverage balance sheets, macroeconomic shocks, risky banking transactions, intense competition, poor management, institutional weakness and dependence on short-term foreign resources and as well as from bank runs (also called as a run at the bank).

The overlap of the banking crisis and the currency crisis is called the twin crises. The damage caused by the twin crises is more severe than a single crisis.

The causes of systemic financial crises can be listed as follows: irrational piling-on of debt; moral hazard induced by mispriced government-provided deposit insurance; complex relationships among counterparties; an unwillingness of dealers to trade; a failure of the Central Bank to provide liquidity as needed; unpredictable adverse shocks that come from outside the financial sector; and bank runs.

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

Orthodox economics is also called mainstream or conventional economics. Orthodox economic policy is a term that refers to the application of conventional and traditional economic policy.