1980 – 1994 Period of Turkish Economy

Pre-crisis Period

Reasons of High PSBR

Table 1: PBRS Ratio Between 1987 and 1995

Stabilization Program, April 5th, 1994

Post-crisis Period

Outline of the Presentation

A liberalization program launched (1980)

1980 – 1994 Period of Turkish Economy

The capital account liberalization (1989)

Pre-crisis Period

I. Large and growing fiscal and external imbalances

II. Rising and very high PSBR

III. Political and social problems

IV. Real exchange rate appreciation

i. Generous agricultural support policies

ii. Worsening performance of the state owned economic enterprises

iii. The increased cost of military operations

iv. Interest payments

Reasons of High PSBR

Ratios to GPD, % 1987 1988 1989 1990 1991 1992 1993 1994 1995

PSBR 6.1 4.8 5.3 7.4 10.2 10.6 12.0 7.8 5.4

Financing PSBR;

Net Domestic Borrowing 3.4 2.7 4.5 6.5 9.8 9.0 10.6 9.6 6.3

Bond 1.2 0.3 0.4 0.5 2.0 2.2 1.1 6.3 2.5

Treasury Bill 1.2 1.9 2.6 2.0 0.4 1.4 1.5 -1.8 1.1

Cash Advances from CB

0.5 0.5 0.2 0.1 1.7 1.6 2.7 1.3 1.2

Others 0.5 0.0 1.3 3.9 5.7 3.8 5.3 3.8 1.5

Net Foreign Borrowing 2.7 2.1 0.8 0.9 0.4 1.6 1.4 -1.8 -0.9

PBRS Ratio Between 1987 and 1995

•A STABILIZATION PROGRAM LAUNCHED (IMF)

PRICE INCREASES OF 70 TO 100 PERCENT ON SEE GOODS

LOW PUBLIC SECTOR WAGES

CUTTING DOWN ON PUBLIC INVESTMENT

April 5th, 1994

Aftermath of the Crisis

The Turkish economy contracted by 6%

In the first quarter of 1994, the Turkish Lira (TL) was devalued more than 50% against the US$

The Central Bank lost half of its reserves

Interest rates skyrocketed

Inflation rate reached three digit levels

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Your Listening

Gizem Büyüksungur *