The Economics Crisis of Turkey: 2000 - 2001

Mustafa Ozgur

Enterprise Hall, 318
October 14, 2004, 08:00 PM to 07:00 PM


In order to reduce the chronically high inflation rate, the Turkish government launched a Disinflation and Stabilization Program in January 2000. The Program came into effect as a three-year-Stand-by Agreement between the IMF and the Turkish government. The Program, prepared and implemented under IMF supervision, collapsed fourteen months after its introduction, resulting in the biggest economic crisis of Turkish economic history. The most frequently blamed factor for the collapse was the fragile financial system. Other factors posited by researchers have included political uncertainty, inflationary inertia, the effects of capital flows, implementation failures, the real appreciation of the Turkish lira, and deteriorating macroeconomic fundamentals. This study emphasizes the flaws of the 1999 Disinflation and Stabilization Program and the role of the IMF in the occurrence of the 2000-2001 economic crisis. Although the factors mentioned in previous studies contributed to the severity of the crisis, the main reason for the failure was the Program itself. The choice of pegged exchange rates, the targeting of two nominal anchors, namely the inflation rate and the exchange rate, the moral hazard problem created by the IMF-orchestrated bailout of foreign investors, the pace of disinflation, and the condition that the Turkish economy was in as of December 1999 doomed the disinflation and stabilization plan for failure. The IMF bears responsibility for the crisis since it was the senior partner providing technical assistance in the preparation and financial assistance in the implementation of the Program.