Turkey's aborted attempt at export-led growth strategy: Anatomy of the 1970 economic reform

Click to increase image sizeClick to decrease image size

Notes

The author gratefully acknowledges the support and assistance of Defne Günay, a graduate student at Bilkent University.

1. See for example, Merih Celasun and Dani Rodrik, ‘Debt, Adjustment, and Growth: Turkey’, in Jeffrey D. Sachs and Susan M. Collins (eds.), Developing Country Debt and Economic Performance: Country Studies – Indonesia, Korea, Philippines, Turkey (Chicago, IL: Chicago University Press, 1988), pp.193–212; and, Anne Krueger and Okan Aktan, Swimming against the Tide: Turkish Trade Reform in the 1980s (San Francisco, CA: ICS Press, 1992).

2. Other areas of contention in the Turkish political economy during the 1960s and 1970s included interest rate and credit policies, direct foreign investment policies, agricultural support policies, and regional inequalities in the distribution of resources. See Henri Barkey, The State and Industrialization Crisis in Turkey (Boulder, CO: Westview Press, 1990), especially pp.109–48.

3. Devlet Planlama Teskilati (DPT), Kalkinma Plani: Birinci Bes Yil (Ankara: Basbakanlik Devlet Matbaasi, 1963), pp.41–2.

4. Baran Tuncer, ‘Türkiye'nin Sanayilesmesi ve Sanayi Politikalari’, in Ekonomik and Sosyal Etüdler Konferans Heyeti, Dis Ticaret ve Ekonomik Gelisme (Istanbul: Ekonomik ve Sosyal Etüdler Konferans Heyeti, 1979), p.179.

5. Zeyyat Hatiboglu, Dis Ticaretimiz ve Devalüasyon (Istanbul: Hüsnütabiat Matbaasi, 1969), pp.78–9. The price increase in the United States amounted to only 6% while it reached 23% in England and France. See p.79.

6. This seemed to be consistent with the broader goal of ‘deepening’ import substitution in the economy. See Table 4.

7. The Import Regime was implemented through annual import programs published annually in the Official Gazette, which was also reprinted by the TOBB.

8. However, considerable amounts of imports against the regulations passed through the customs, which were either permitted by special commissions established within the Regime or by special decrees of pardon enacted occasionally to legalize a de facto change in the composition of commodities. See Erhan Bener, ‘Foreign Trade Regime of Turkey’, in The Economic and Social Conference Board, Foreign Trade and Economic Development (Original in English) (Istanbul: The Economic and Social Studies Board, 1968), p.184.

9. Anne Krueger, Foreign Trade Regimes and Economic Development: Turkey (New York: Columbia University Press for the National Bureau of Economic Research, 1974), p.159.

10. Ibid., p.165.

11. Ibid., p.158.

12. Ibid., p.165.

13. Unrealistic registered export prices for chrome resulted in a continued loss of market for Turkish producers. See Krueger, Foreign Trade, p.189. See also pp.188–9.

14. See Erdogan Alkin, ‘Türkiye'de Ihracatin Gelismesine Genel Bir Bakis’, in Iktisadi Arastirmalar Vakfi (IKV) (ed.), Türkiye Ihracatinda Gerileme Sebepleri ve Buna Karsi Alinacak Tedbirler (Istanbul: IKV, 1975), pp.20–2.

15. See Alkin, ‘Türkiye'de Ihracatin’, p.22.

16. See Mükerrem Hiç, Türkiye'de Ihracatin Gelistirilmesi Sorunu (Istanbul: Ayyildiz Matbaasi, 1973), p.63.

17. For a sample of this literature and details of the inward-oriented foreign trade policies, see Krueger, Foreign Trade; Anne Krueger, Foreign Trade Regimes and Economic Development, Vol X: Liberalization Attempts and Consequences (New York: Ballinger for NBER, 1978), esp. pp.36 and 38; Tuncer, ‘Türkiye'nin’, Barkey, The State, esp. p.73; and, Tercan Baysan and Charles Blitzer, ‘Turkey’, in Demetris Papageorgiou, Michael Michaely, and Armeane M. Choksi (eds.), Turkish State, Turkish Society (London: Routledge, 1990), esp. pp.288–9 (Figure 2.1).

18. See Barkey, The State, p.113.

19. For a statement of the industrial sector's desire for unrestrained access to import markets, see for example the press release of Dr. Orhan Isik, the President of Ankara Industrial Chamber. Milliyet (Istanbul Daily), 12 July 1970.

20. The variation between the two sources seems to be due to differences in classification.

21. See Yalçin Küçük, Quo Vadimus – Nereye Gidiyoruz (Istanbul: Tekin Yayinevi, 1985), pp.253–7.

22. See for example, Ayse Öncü, ‘Chambers of Industry in Turkey: An Inquiry into State–Industry Relations as a Distributive Domain’, in Ergun Özbudun and Aydin Ulusan (eds.), The Political Economy of Income Distribution in Turkey (New York: Holmes&Meier Publishers, Inc., 1980), pp.472–5.

23. Minutes of Istanbul Chamber of Industry's Executive Council Meetings, 15 April 1970, cited in Barkey, The State, p.119.

24. Cumhuriyet (Istanbul Daily), 24 July 1970, p.7.

25. A.hmet Kiliçbay, ‘Iktisadi Durum ve Planlama Teskilati’, Cumhuriyet, 22 July 1970.

26. Cumhuriyet, 27 July 1970, pp.1, 7.

27. Cumhuriyet, 24 July 1970, p.7; see also, Ilhan Selçuk, ‘Amerikan Pazari mi? Avrupa Pazari mi?’, Cumhuriyet, 23 July 1970, p.2.

28. Barkey, The State, p.114. See also p.113.

29. For such an attempt, see Sylvia Maxfield and James H. Nolt, ‘Protectionism and the Internationalization of Capital: U.S. Sponsorship of Import Substitution Industrialization in the Philippines, Turkey and Argentina’, International Studies Quarterly, Vol. 34 (1990), pp.49–81.

30. See World Bank, Turkey: Prospects and Problems of an Expanding Economy (Washington, D.C.: World Bank, 1975), p.346, Table 3.2.

31. For a statement of these points, see the interview with economist Mükerrem Hiç, Cumhuriyet, 24 July 1970, p.7.

32. One of three technocrats, General Secretary of the Treasury, was legally reporting to the Minister of Finance, but in practice he was working more closely with the Prime Minister.

33. Yalçin Dogan describes their harmony as unprecedented in Turkish bureaucratic history. See Yalçin Dogan, IMF Kiskacinda Türkiye: 1946–1980 (Ankara: Toplum Yayinlari, 1980), p.111.

34. Ibid.

35. An excellent forum of discussion of such issues was a conference–named Foreign Trade and Economic Development – in Istanbul in 1968 organized by the Economic and Social Conference Board. Demirel sent a rather long inaugural message to the Conference. See also, Hürriyet (Istanbul Daily), 11 August 1970, which reported that ‘inflation rose and foreign trade gap increased. We came to pre-1958 conditions in 1968. Since then, we have been debating whether to devalue the TL.’

36. Baysan and Blitzer, ‘Turkey’, p.325.

37. See Cüneyt Arcayürek's series on the package, ‘Devalüasyon Defterinin Diger Sayfalari 1’, Hürriyet, 16 Aug. 1970.

38. Dogan, IMF Kiskacinda, pp.117–8.

39. ‘With heightened emphasis on growth during the 1960s the foreign exchange constraint was certainly viewed as a bottleneck to growth, and reported disruptions of production resulting from transfer delays and import shortages may have influenced the Prime Minister's attitude.’ Betty S. Yaser, ‘Economic Aspects of Devaluation of the Turkish Lira of August 10, 1972’, AID Discussion Paper No.5, (Ankara), April 1972, p.2, cited in Krueger, Foreign Trade, p.312.

40. Hürriyet, 11 Aug. 1970.

41. See Ismail Cem, Tarih Açisindan 12 Mart (Istanbul: Cem Yayinevi, no date), pp.355–64.

42. Barkey, The State, p.150.

43. Ismail Cem, ‘1969 Seçim Sonuçlari ve Türkiye Gerçekleri’, Milliyet (Istanbul Daily), 17 Oct. 1970.

44. Minutes, 20 November 1968, and Minutes, 17 November 1973, both cited in Barkey, The State, p.151.

45. See Robert Bianchi, Interest Groups and Political Development in Turkey (Princeton, NJ: Princeton University Press, 1984), pp.256–7.

46. Minutes, 21 January 1970, cited in Barkey, The State, p.152.

47. Ismet Inönü, the President of the country from 1938 to 1950, was still the leader of the RPP. But Ecevit as the party's general secretary was the de facto leader of the RPP due to Inönü's advanced age. Whereas Inönü was a centrist politician, Ecevit emerged as the leader of the left-of-center within the party. Ecevit became the official leader of the party later in 1972.

48. Ismail Cem suggested that all the indicators of the period point towards a weakening in Demirel's power base. See Cem, Tarih Açisindan, p.364.

49. Cumhuriyet, 24 July 1970, p.7.

50. The Minister of Finance, Mesut Erez, denied these claims, and stated that ‘we took these decisions out of our belief that they are beneficial for our economy. It is impossible to link the devaluation with the foreign credits, since we obtained the credits for this year before the devaluation.’ Hürriyet, 11 Aug. 1970, p.9.

51. Tercüman (Istanbul Daily), 29 July 1970, p.1.

52. Dogan, IMF Kiskacinda, pp.120, 123.

53. Anne Krueger and Vernon Ruttan, ‘Turkey’ in Anne Krueger, Constantine Michalopoulos, Vernon W. Ruttan (eds.) Aid and Development (Baltimore: Johns Hopkins University Press, 1989), p.312.

54. Cumhuriyet, 24 July 1970, pp.1, 7.

55. Krueger and Ruttan, ‘Turkey’, p.312.

56. Tercüman, 16 Sep. 1970, p.7.

57. Yaser, ‘Economic Aspects’, p.2.

58. Since June 1961, the exchange rate became gradually less unitary as subsidies and taxes were put into effect. By August 1970, the commodity exchange rate was still TL 9 per dollar while the workers' remittances and tourist buying rates were TL 12 per dollar and the tourist selling rate was TL 13.5 per dollar. The devaluation equalized these three rates de facto at TL 14.85 per dollar buying rate and TL 15 per dollar selling rate. See OECD, Economic Surveys: Turkey – 1970 (Paris: OECD, 1970), p.23; and Krueger and Ruttan, ‘Turkey’, pp.313–4.

59. See OECD, Economic Surveys: Turkey – 1970, p.25; Baysan and Blitzer, ‘Turkey’, p.330; and, Krueger and Ruttan, ‘Turkey’, p.314.

60. See OECD, Economic Survey: Turkey – 1970, p.25; Krueger and Ruttan, ‘Turkey’, pp.314–5; and, Baysan and Blitzer, ‘Turkey’, p.330. There were some other measures in the Aug. 1970 reform package that aimed at maintaining internal stability of the economy. However, there were a few related measures taken prior to the reform as well. The stabilization measures included increases in some indirect tax rates and imposition of new taxes, changes in domestic pricing policies, and slight changes in the structure of interest rate policy. For our present purposes, we can skip the details of these policy changes.

61. For these data, see Krueger, Liberalization Attempts.

62. Dogan, IMF Kiskacinda, p.119.

63. There have been many accounts of the 1971 pronounciamento. It is generally agreed that it was a counter-coup of the high command against a coup being planned by the junior, more radical military officials in cooperation with progressive intellectuals who advocated social and economic reforms to deepen Atatürk's revolutions. The high command initially appeased the junior officials with its reformist rhetoric, but quickly turned authoritarian, abandoned the reform rhetoric and purged the radicals from the armed forces. Another explanation is that the military suppression addressed the worries of the bourgeoisie about the rising left in the forms of militant trade unionism, and left-wing intellectual and student movements. Still another explanation is that the military pressure was applied to resolve the internal struggles of the private sector in favor of industrialists. For our purposes, we will only discuss the foreign trade policy implications of the military-backed governments between 1971 and 1973.

64. See Cem, Tarih Açisindan, pp.454–5.

65. Dogan, IMF Kiskacinda, p.122.

66. For more on these, see Emin Çölasan, 24 Ocak – Bir Dönemin Perde Arkasi (Istanbul: Milliyet Yayinlari, 1984), 19th Edition, pp.113–5; and, Barkey, The State, p.156.

67. Süleyman Demirel, 1971 Buhrani ve Aydinliga Dogru (Ankara: Dogus Matbaasi, 1973), pp.157–8. With the Green Plan, Demirel suggests a separate plan for the agricultural sector inserted into the five year development plans. The Green Plan would, among other things, encourage the production of crops with favorable domestic and international demand conditions. See his speech in Konya province on 15 October 1970, printed in Demirel, 1971 Buhrani, pp.287–90.

68. Demirel, 1971 Buhrani, p.324.

69. Ibid., pp.324–5 and 326–7.

70. Cüneyt Arcayürek, Demirel Dönemi – 12 Mart Darbesi: 1965–1971 (Ankara: Bilgi Yayinevi, 1985), p.324.

71. World Bank, Turkey: Prospects, p.182.

72. In fact, these numbers understate the importance of these crops among the exports of the country since agriculture-based ‘industrial’ exports, which use these crops as inputs of production, also increased during the period.

73. World Bank, Turkey: Prospects, p.208.

74. ‘By 1970 about 4,000 farm units with holdings of 1,000 hectares or more were at one end of the spectrum. At the other end were 800,000 farm units with one hectare or less and another 600,000 units with between one and two hectares. Nearly half of all farms fall in these latter categories but accounted for only 11 percent of the land covered by the 1970 census sample.’ World Bank, Turkey: Prospects, p.213.

75. Interview with an ex-Demokratik deputy in the Parliament, Ankara, Jan. 1994.

76. Barkey, The State, p.155.

77. Land reform was one of the explosive political issues of the late 1960s and early 1970s. The second half of the 1960s, credit-hungry industrialists joined the intellectuals and technocrats of the SPO in demanding the land reform and taxation as a way of resource transfer from the agricultural sector. The JP flirted with the idea, alienating some of its constituents (later Demokrats). Under the technocratic Erim government, the Deputy Prime Minister Atilla Karaosmanoglu prepared a land reform proposal, but it was never voted into law. There were a total of five land reform proposals floated around between 1969 and 1972. See for example, Yalçin Küçük, Planlama Kalkinma ve Türkiye (Istanbul: Tekin Yayinevi, 1978), pp.259–61.

78. See Demirel, 1971 Buhrani, p.325.

79. See Kemal Dervis and Sherman Robinson, Foreign Exchange Gap, Growth and Industrial Strategy in Turkey: 1973–1983 (Washington, DC: World Bank, 1978), p.41.

80. See DPT, Üçüncü Bes Yil – Yeni Strateji ve Kalkinma Plani (Ankara: DPT, 1972), p.190.

81. See DPT, Dördüncü Bes Yillik Kalkinma Plani, 1979–1983 (Ankara: DPT, 1978), p.67.

82. See Dogan Avcioglu, Türkiye'nin Düzeni: Dün, Bugün, Yarin (Ankara: Bilgi Yayinevi, 1969), p.1141.

83. See Dogan, IMF Kiskacinda, pp.123–7.

84. Barkey, The State, p.154.

85. For this, see Dervis and Robinson, Foreign Exchange, p.41; Bela Balassa, The Newly Industrializing Countries in the World Economy (New York: Pergamon Press, 1981). pp.315–6; Celasun and Rodrik, ‘Debt, Adjustment, and Growth’, p.622; Barkey, The State, p.96;. See also, Asaf Savas Akat, Alternatif Büyüme Stratejisi : iktisat Politikası Yazıları (Istanbul : İletişim, 1983); Korkut Boratav, Türkiye Iktisat Tarihi, 1908–1985 (Istanbul: Gerçek Yayinlari, 1993).

86. Celasun and Rodrik, ‘Turkey’, p.622.

87. Barkey, The State, p.96.

88. Balassa, The Newly Industrializing, pp.315–6. See also, Boratav, Türkiye Iktisat; Akat, Alternatif Büyüme.

89. Anne Krueger and Okan Aktan, Swimming against the Tide: Turkish Trade Reform in the 1980s (San Francisco, CA: ICS Press, 1992), p.28.

90. D. Togay, Counselor to the General Secretariat of the Foreign Trade under the Ministry of Trade, suggested in May 1974 that ‘As known, there was no contribution of the 1970 devaluation to increase our exports. … The devaluation improved the current account balance by speeding up the import of workers’ remittances.’ D. Togay, ‘Ihracatin Yapisi ve Özellikleri’, in IGEME, Sanayiimizin ve Ihracatimizin Gelisme Yönleri Symposiumu – Ankara, 20–25 Mayis 1974 (Ankara: IGEME, 1974), p.48.

91. DPT, 1972 Yili Programi (Ankara: DPT, 1972), p.11.

92. For example, D. Togay refers to a book by Necdet Serin in his concluding sentence to quota that ‘So long as the structure of the Turkish economy continues to be the same as it is today, devaluation cannot be a viable solution to increase foreign exchange earnings from exports.’ Necdet Serin was an economics professor from the Faculty of Political Science of Ankara University, which educated the vast majority of Turkey's bureaucrats until the early 1980s. See Togay, Ihracatin Yapisi, p. 48. See also Necdet Serin, Kalkinma Ve Dis Ticaret: Az Gelismis Ülkeler ve Türkiye Yönünden (Ankara: Ankara Üniversitesi Siyasal Bilgiler Fakültesi, 1972), p.239. Despite unprecedented pluralism on political issues, the consensus of the intellectuals on economic policy issues remained remarkably strong and unquestioned. For an elaboration of this puzzling unity of economic ideology, see Akat, Alternatif Büyüme; and, Zeyyat Hatiboglu, Bilinmeyen Yönleriyle Türkiye Ekonomisi (Istanbul: Lebib Yalkin Yayinlari, 1995).

93. Y. Canevi, Mini Devalüasyon (Ankara: Ayyildiz Matbaasi for Türkiye Ekonomi Kurumu, 1978), p.29.

94. TOBB, Para Ayarlamasinin Getirdigi Ekonomik Sorunlar ve Kararlarla Ilgili Görüslerimiz ve Tekliflerimiz (Ankara: TOBB, 1970), pp.15–6.

95. TOBB, Devalüasyon – Yeni Vergiler ve Otomotiv Sanayi (Ankara: TOBB, 1971), p.6. Also see, pp.4–38.

96. See for example, TOBB, Para Ayarlamasinin, p.11. The TOBB report stated that ‘it had suggested to the government that by increasing productivity in agricultural and industrial production, promoting exports with sufficient subsidies and raising foreign exchange income from invisibles, the exchange value of the TL can be enhanced and there would be no reason to resort to devaluation.’

97. Barkey, The State, p.166. In reality, this statement referred mostly to the industrialists and importers of 1970.

98. Barkey, The State, p.168.

99. In Turkey, the Prime Minister's Office has had the strongest incentive to fight against the weakening of the state's economic power base. Indeed, the military coups of 1960, 1971 and 1980 all blamed the ills of the country's political economy on the Prime Ministers rather than the Presidents. The coup makers also legitimized their actions by arguing that the state was about to collapse before they intervened.

100.Krueger and Ruttan, ‘Turkey’; Dervis and Robinson, The Foreign Exchange; and Barkey, The State, especially p.168.