Beyond the 2001 financial crisis: The political economy of the new phase of neo-liberal restructuring in Turkey

ABSTRACT

Turkey has experienced consecutive financial crises in 2000 and 2001. The crisis of 2001 was particularly far-reaching in terms of its impact, resulting in a major collapse of output and employment. It was also quite distinct in terms of its income distributional consequences in the sense that not only the wage earners, but all sections of society at varying degrees encountered its negative consequences. The crisis also provided an avenue for a new wave of neo-liberal restructuring with a major emphasis on regulatory reforms. Turkey's political economy in the post-2001 era is investigated on the basis of four key inter-related elements: the impact of the IMF and the World Bank; the restructuring of the state's relationship with the domestic financial sector especially through regulatory reforms; the opening up of Turkey to foreign direct investment; and the adoption of a wide range of reforms modelled on the European Union, in line with the goal of entry into the EU. Indeed, the regional context associated with EU conditionality has provided the political focus of the process as a whole. A key hypothesis is that Turkey continues to be vulnerable in spite of the fact that the banking sector is much more tightly regulated in line with international norms during the post-crisis era.

KEYWORDS:

• Globalization
• state transformation
• economic reforms
• regulation
• regional dynamics
• International Monetary Fund

ACKNOWLEDGEMENTS

This paper was presented at the ISA Annual Convention, San Diego, California, USA, in March 2006. I would like to thank Philip Cerny, Louis Pauly, Fikret Şenses and the two anonymous referees of the journal for their valuable comments.

Notes

1 The amount of financial assistance provided by the EU to Turkey for the years 2000 and 2001 is 423 million Euros. For more information see the website: www.abgs.gov.tr.

2 For contrasting interpretations of the reasons underlying the 2000/2001 financial crises in Turkey, see Öniş and Rubin (2003), Akyüz and Boratav (2003), Cizre and Yeldan (2005) and Yeldan (2006). Öniş and Rubin's (2003) study takes into account the nature of domestic politics and the weak commitment on the part of the key political actors whilst the others tend to place the primary blame on the IMF for failing to prevent a crisis in the context of an on-going program. Concerning the position of large conglomerates the following qualification is called for. Such conglomerates, while losing revenues due to declining sales and a contracting economy, benefited asymmetrically from rising interest rates and depreciating domestic currency due to high levels of currency substitution and portfolio diversification on their part.

3 The number of loans provided by the IMF in the post-crisis period amounted to approximately 24 billion US dollars. The IMF provided 8 billion US dollars in the immediate aftermath of the crisis during the course of 2001 and 9 billion US dollars in 2002.

4 For a useful comparison of different styles of social and political response to crises in Latin America and post-communist Eastern Europe employing Albert Hirschman's concepts of ‘exit’ and ‘voice’, see Greskovitz (1998). On the importance of informal ties and family networks, see Buğra (2003).

5 A recent report by the IMF also draws attention to the persistence of a large current account deficit as a problem that needs to be addressed by the policy-makers. See IMF (2005).

6 The assessments of ‘transnational capital’ are based on the reports of institutions like the IMF, the World Bank and the OECD. See IMF (2005); the World Bank (2003, 2006); OECD (2004a). For the perspective of ‘big business’ the key source of information is the reports published by the key business association representing ‘big business’, ‘The Turkish Industrialists and Businessmen's Association’ (TÜSİAD). See TÜSİAD (2005). For ‘small and medium-sized business’, the assessment was based on the reports of two key business associations, ‘The Confederation of Chamber and Stock Exchanges in Turkey’ (TOBB), a semi-official organization for every business unit has to be registered and ‘The Independent Industrialists and Businessmen's Association’ (MÜSİAD). See TOBB (2005) and MÜSİAD (2005). In this context, see also OECD (2004b). For labor, the publications of TÜRK-İŞ, a major umbrella organization of labor unions in Turkey, constitute the main source of information. See Bağdadioğlu (2004). The annual assessment of the organization ‘Independent Social Scientists’ provides a similar critical perspective. See Bağimsiz Sosyal Bilimciler (2005).