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Adjusting to Financialization: Turkey as a Peripheral Agent of New-Imperialism

This paper examines the patterns of adjustment in Turkey under the age of finance, focusing on the challenges posed by capital inflows, an overvalued exchange rate, and high real interest rates. It explores the impact on macroeconomic fundamentals, the current account deficit, inflation, and jobless growth. Lessons from history are drawn to understand the implications for Turkey's economic development.

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Adjusting to Financialization: Turkey as a Peripheral Agent of New-Imperialism

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  1. Patterns of Adjustment under the Age of Finance: The Case of Turkey as a Peripheral agent of New-Imperialism A. Erinç Yeldan University of Massachusetts, Amherst Bilkent University, Ankara

  2. “In these papers all needless matters have been eliminated ... There is throughout no statement of past things wherein memory may err, for all the records chosen are exactly contemporary, given the knowledge of those who made them.” -Bram Stoker, Dracula, 1897

  3. With the completion of capital account liberalization in 1989, Turkey is trapped into • high real rates of interest and • an overvalued exchange rate (cheap foreign currency)

  4. Inflation of Producer Prices and The Interest Rate on GDIs

  5. Worsening of macroeconomic fundamentals led by capital inflows: The Frenkel-Taylor cycle Rise in the domestic interest rate: Stimulate capital inflows Domestic currency appreciates Imports expand, current account deficit widens To finance the foreign deficit, invite even more capital inflows, raise the interest rate

  6. The 2000 Dis-Inflation Programme From Speculative-led Growth to IMF-led Crisis...

  7. With the implementation of a more stringent fiscal policy, the crisis might perhaps have been alleviated. Unfortunately, the fiscal policy had not been strong enough, and the current account deficit widened... Stanley Fischer

  8. Annual Volume of Banking Credit Flows From Abroad (Millions US$)

  9. Adjustment Mechanisms after the 2001 Crisis and the Main Features of the IMF Programme

  10. Inflation is on a falling trend, yet the real interest rate proves to be inertial...

  11. Inflation and Real Interest Rates(WPI1994 =100)

  12. Large scale of Capital Inflows lead to currency Mis-alignment...

  13. Real Bilateral and the Trade Weighted Rates of Foreign Exchange

  14. Ratio of Current Account Balance to GNP

  15. The current account deficit problem emerges not because of its sheer size, but because of the mode of financing

  16. Composition of Foreign Debt (Millions $)

  17. Dilemmas of Turkish adjustment: Economic growth relies on foreign capital inflows, which necessitate high real interest rates domestically; yet High real interest rates aggrevate the problem of debt management

  18. jobless growth and declining real wages...

  19. Turkey: Labor Productivity and Real Wages, 2000-2006

  20. Source: EconomicPolicy Institute

  21. Wages and Producticity in the US Manufacturing (1950-1998)

  22. Productivity and Real Wages in Turkish Manufacturing, 1950-2005

  23. Public policy became synonymous to populism and waste. “Good-bye Budget deficits, hello democracy deficit...”

  24. Excerpts from Morgan Stanley Economic Forum on Turkey, March 4, 2003 “the latest parliamentary decision to reject the much-debated ‘war motion’ is such a risk that will no doubt disturb the fragile equilibrium...(Turkey) is unlikely to get the promised $24 billion that would ease pressure on the domestic debt market...”

  25. “what happens if the parliament does not altogether vote for the economic reforms, arguing that 80% of the Turkish population is against the IMF program?”

  26. Lessons “ the argument that ‘this time things are different’ is a statement that can only be made by fools that fail to take any lessons from history...” Kenneth Rogoff, 2005

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