NOTES
- Krugman , Paul . 1979 . “A Model of Balance of Payments Crises,” . Journal of Money, Credit, and Banking , 11 : 311 – 25 .
- American Economic Review , 76 72 – 91 . The standard study on the subject—which is called “multiple equilibria” in the literature of economics—is Maurice Obstfeld, “Rational and Self-Fulfilling Balance-of-Payments Crises.” (March 1986), pp. See also Paul R. Masson, “Multiple Equilibria, Contagion, and the Emerging Market Crises,” IMF Working Paper No.164 (Nov. 1999)
- Kindleberger , Charles P. 1978 . Manias, Panics, and Crashes: A History of Financial Crises New York : John Wiley & Sons . The classic treatment of financial panic is
- Chang , Roberto and Velasco , Andrés . July 1999 . “Liquidity Crises in Emerging Markets: Theory and Policy,” . In NBER Working Paper July , No.72/72 (Chang and Velasco call it “international liquidity,” which sounds somewhat misleading—hence I use the term “external illiquidity.”
- Kaminsky , Graciela L. and Reinhart , Carmen M. 1999 . “The Twin Crisis: The Causes of Banking and Balance-of-Payments Problems,” . American Economic Review , 89 June : 473 – 500 . See (. One main reason for an emphasis on banks in currency crises is that banks are special actors within the financial sector in almost all countries, but even more so in emerging market economies where banks intermediate most capital flows
- Agénor , Pierre-Richard . 2000 . The Economics of Adjustment and Growth San Diego, CA : Academic Press . For a theoretical discussion of the impact of capital flows on bank balance sheets, see (Ch.6
- 1997 . American Economic Review , 87 May : 189 – 93 . Short-term foreign debt flows encompass a range of financial transactions, including commercial bank loans and public debt with a maturity of less than a year, trade credits, other loans, and contracts in foreign currency. Banks prefer to borrow short-term loans because of lower interest rate premiums associated with such loans. For the effects of financial liberalization on the behavior of banks and non-bank financial actors, see Ronald McKinnon and Huw Pill, “Credible Economic Liberalization and Overborrowing,” (pp., Papers and Proceedings of the 109th Annual Meeting of the American Economic Association
- 1999 . As Rodrik and Velasco note: “putting in place an adequate set of prudential and regulatory controls to prevent moral hazard and excessive risk-taking in the domestic banking system is a lot easier said than done. Even the most advanced countries fall considerably short of the ideal, as their bank regulators will readily tell you.” See Dani Rodrik and Andrés Valesco, “Short-term Capital Flows,” Paper prepared for the 1999 ABCDE Conference at the World Bank, April
- Mussa , Michael , Masson , Paul , Swoboda , Alexander , Jadresic , Esteban , Mauro , Paolo and Berg , Andy . 2000 . “Exchange Rate Regimes in an Increasingly Integrated World Economy,” . In IMF Occasional Paper, No. 193
- Calvo , Guillermo A. and Végh , Carlos A. 1999 . “Inflation Stabilization and BOP Crises in Developing Countries,” . In NBER Working Paper, No.6925 (Feb
- Calvo , Guillermo A. “Capital Flows and Capital-Market Crises: The Simple Economics of Sudden Stops,” . Journal of Applied Economics , 1 35 – 54 . (Nov. 1998)
- Chang and Velasco . 1999 . See
- 1998 . Brookings Papers on Economic Activity , 2 : 17 As Furman and Stiglitz write: “There is overwhelming evidence that financial liberalization increases the vulnerability of countries to crises.” See Jason Furman and Joseph Stiglitz, “Economic Crises: Evidence and Insights from East Asia,”p
- Caprio , Gerard Jr. , Atiyas , Izak and Hanson , James A. , eds. 1994 . Financial Reform: Theory and Experience 103 – 37 . New York : Cambridge University Press . For a discussion of the Turkish financial opening, see Izak Atiyas and Hasan Ersel, “The Impact of Financial Reform: The Turkish Experience,” in (Erol M. Balkan and A. Erinç Yeldan, “Turkey,” in José M. Fanelli and Rohinton Medhora (eds.), Financial Reform in Developing Countries (New York: St. Martin's Press, 1998), pp. 129–55
- Griffith-Jones , Stephany . 2001 . “Causes and Lessons of the Mexican Peso Crisis,” . In Short-Term Capital Flows and Economic Crises Edited by: Stephany Griffith-Jones , Manuel , Montes , F. and Nasuton , Anwar . 144 – 72 . New York : Oxford University Press . in
- Turkey survived the Russian crisis in 1999 mainly due to such exchange rate flexibility, which acted as a shock absorber
- 2002 . This is the figure of the Central Bank of Turkey cited in Fatih Özatay and Güven Sak, “The 2000–2001 Financial Crisis in Turkey,” Paper presented at the Brookings Trade Forum 2002: Currency Crises, Washington DC, May
- For details of the program, see the Letter of Intent of the Turkish government to the IMF at <http://www.imf.org/external/np/loi/1999/120999.htm>
- 2001 . Russian and East European Finance and Trade , 37 ( No.6 ) : 51 – 71 . For the developments following the launch of the stabilization program, see Emre Alper, “The Turkish Liquidity Crisis of 2000: What Went Wrong?,”,Yilmaz Akyüz and Korkut Boratav, “The Making of the Turkish Financial Crises,” UNCTAD Discussion Paper No. 158 (April 2002); Ferya Kadioğlu, Zelal Kotan, and Gülbin Şahinbeyoğlu, Kura Dayali İstikrar Programi Uygulamasi ve Ödemeler Dengesi Gelişmeleri: Türkiye 2000 [Exchange Rate-Based Stabilization Program and Developments in the Current Account: Turkey 2000] (Ankara: Central Bank of Turkey, 2001); OECD, Turkey, 2000–2001, Economic Survey (Paris, 2001); Ercan Uygur, “Krizden Krize Türkiye: 2000 Kasim ve 2001 Şubat Krizleri” [From Crisis to Crisis: The Crises of November 2000 and February 2001], Türkiye Ekonomisi: Tartişma Metni [Turkish Economy: A Discussion Paper], No.2001/01 (2001); Erinç Yeldan, “On the IMF-Directed Disinflation Program in Turkey: A Program for Stabilization and Austerity or a Recipe for Impoverishment and Financial Chaos?,” mimeograph, Department of Economics, Bilkent University, Ankara (2001)
- 2002 . 16 During the first months of 2000, short-term bank credits from abroad amounted to $3.6 billion and long-term bank credits to $3.2 billion. See Akyüz and Boratavp. Uygur (2001)
- Alper . 2001 . 55 – 8 . See
- 2001 . 13 OECDp. Also see European Banks Equity Research “Industry Analysis: Turkish Banking,” J.P. Morgan Securities (March 28, 2001)
- Mussa , eds. 2000 . 21 It is ironic that a recent IMF study, which was written around the same time as the Turkish disinflation program was formulated, draws attention to “the difficulties and dangers of running pegged or quasi-pegged exchange rate regimes for emerging market economies with substantial involvement in global markets.” See p
- Márcio , G. P. and Valpassos Marcus Vinicius , F. 2000 . “Capital Flows, Capital Controls, and Currency Crisis: The Case of Brazil in the 1990s,” . In Capital Flows, Capital Controls, and Currency Crises: Latin America in the 1990s Edited by: Larraín , Felipe . 142 – 91 . Ann Arbor, MI : University of Michigan Press . in (Eliana Cardoso and Ann Helwege, “The 1990s Crisis in Emerging Markets: The Case of Brazil,” in Dipak Dasgupta, Marc Uzan, and Dominic Wilson (eds.), Capital Flows Without Crisis? (London and New York: Routledge, 2001), pp. 161–81; Eliana Cardoso and Ilan Goldfajn, “Capital Flows to Brazil: The Endogeneity of Capital Flows,” IMF Staff Papers 45 No.1 (March 1998), pp. 161–202
- Granville , Brigitte . 2001 . “The Problem of Monetary Stabilization,” . In Russia's Post-Communist Economy Edited by: Granville , Brigitte and Oppenheimer , Peter . 93 – 129 . New York : Oxford University Press . The opening of the GKO market to foreigners prompted a rush on Russian securities. By late 1997 over one-third of the GKO market became dominated by foreign investors. For details of the developments in Russia between 1995 and 1998, see. The reasons for the initial restrictions on foreign investors in the GKO market appear to be twofold: the Russian authorities were concerned about the adverse effects of hot money and the government's desire “to protect the domestic banking system sector against a rapid fall of yields” (ibid.,p. 115)
- 2001 . Quarterly Review of Economics and Finance , 40 : 3 – 24 . For the 1995 banking crisis in Brazil, see Werner Baer and Nader Nazmi, “Privatization and Restructuring of Banks in Brazil,”2000,pp. For the Russian banking crisis in 1995, see Mikhail Dmitriev, Mikhail Matovnikov, Leonid Mikhailov, Lumila Sycheva, and Eugene Timofeyev, “The Banking Sector,” in Granville and Openheimerpp. 213–37
- Rodrik and Velasco . 1999 . For the use of the measure, see Stiglitz and Furman (1998), pp. 50–53; Steven Radelet and Jeffrey Sachs, “The Onset of the East Asian Financial Crisis,” in Paul Krugman (ed.), Currency Crises (Chicago, IL and London: University of Chicago Press, 2000), pp. 105–53
- A “crisis” is defined as a situation in which one of two conditions is present: 1) there is a reversal in net foreign capital flows of at least five percent; 2) currency is devalued by 25 percent or more
- Boratav , Korkut . 2000/2001 . “Krizinde Sermaye Hareketleri” [Capital Flows during the 2000/2001 Crisis] available at <http://www.bagimsizsosyalbilimciler.org>
- Eichengreen , Barry . “Crisis Prevention and Management: Any New Lessons from Argentina and Turkey?,” Background paper for the World Bank's ” . In Global Development Finance 2002 Washington, DC For such arguments, see Uygur (2001); Kadiğolu et al. (2000)
- 2001 . Pre-Accession Economic Programme 10 Ankara State Planning Organization of Turkey (DPT),(p
- Çevik , Serhan . “On the Sustainability of the Current Account Deficit,” . In Global Economic Forum, Aug. 15, 2000 For example, in an analysis of economic developments in Turkey a major investment firm considered the widening current account only as a “transitional by-product of the stabilization program.”See
- Barbieri , Riccardo and Çevik , Serhan . Oct. 10, 2000 . “Turkey: 2001 Budget to Reaffirm Commitment to IMF Program,” . In Global Economic Forum For instance, see
- 2001 . Kadiğolu etal See DPT2001
- Sachs , Jeffrey A. , Tornell , Aaron and Velasco , Andrés . 1996 . “Financial Crises in Emerging Markets: The Lessons from 1995,” . Brookings Papers on Economic Activity , 1 : 147 – 98 . see also Ilan Goldfajn and Rodrigo O. Valdés, “Are Currency Crises Predictable?,” European Economic Review Vol.42 (1998), pp. 873–85
- Radelet and Sachs . 2000 . 118 – 24 . See
- Goldfajn , Ilan . “The Swings in Capital Flows and the Brazilian Crisis,” . In Texto Para Discussão, Pontificia Universidade Católica-Rio de Janerio, No.422 (April 2000), n.p. For the effects of the Russian crisis on Brazil, see Alfonso Ferreira and Guiseppe Tullio, “The Brazilian Exchange Rate Crisis of January 1999,” Journal of Latin American Studies Vol.34, No.1 (Feb. 2000), pp. 143–65
- Radelet and Sachs . 2000 . 133
- 2001 . 159 – 64 . For the role played by bank fragility in the developments leading to the peso crisis in Mexico, see Griffith-Jones Nancy Birdsall, Michael Gavin, and Ricardo Hausmann, “Getting the Lessons Right: A View from the Inter-American Bank,” in Sebastian Edwards and Moises Naim (eds.), Mexico 1994: Anatomy of an Emerging-Market Crash (Washington DC: Carnegie Endowment for International Peace, 1997), pp. 275–94. For Thailand, see Peter G. Warr, “Capital Mobility and the Thai Crisis,” in Dasgupta, Uzan and Wilson (2001), pp. 215–36
- de Paula Luiz Fernando , R. and José Alves , Antonio Jr. 2000 . “External Financial Fragility and the 1998–1999 Brazilian Currency Crisis,” . Journal of Post Keynesian Economics , 22 ( No.4 ) Summer : 614 There was also some direct and mechanical contagion from Russia to Brazil. The Russian moratorium on its public debt “produced large losses for major Western financial institutions and led them to sell assets in emerging markets to raise funds to cover their losses, thus creating an outflow of capital from those markets. This affected Brazil in particular because the markets for Brazilian equities and Brady bonds [were] the largest and most liquid of emerging markets, and play important roles in global arbitrage strategies.” Cited in
- 1999 . International Affairs , 75 ( No.4 ) : 729 – 41 . Since investors' principal concern about the exchange rate had been Brazil's ability to maintain fiscal balance, to pay its debts, and to resist the temptation to pay them through monetization, Franco's announcement led to the acceleration of capital outflows. See Victor Bulmer-Thomas, “The Brazilian Devaluation: National Responses and International Consequences,”
- OECD . 2001 . 14
- 2000 . Radikal (Turkish daily), Dec. 5
- Nov. 23, 2000 . Radikal
- OECD . 2001 . 10 It is estimated that Deutschebank unloaded $750 million worth of government securities in a single day, see Uygur (2001),p. 17
- OECD . 2001 . 11
- Akyuz and Boratav . 2002 . Some authors argue that banking reform should have been implemented prior to the introduction of the program. See C. Emre Alper and Ziya Öniş, “Soft Budget Constraints, Government Ownership of Banks and Regulatory Failure: The Political Economy of Turkish Banking System in the Post-Capital Account Liberalization Era,” mimeograph, Koç University (2001). However, since banking reform takes a long time, its earlier launch would necessarily coincide with the critical first year of the stabilization program. One should also note that IMF policies towards the restructuring of financial companies in Thailand and banks in Indonesia in the midst of the 1997 crisis had disastrous economic consequences for both countries. For a critique of this and other policies of the IMF, see Joseph E. Stiglitz, Globalization and Its Discontents (New York: W.W. Norton, 2002). For a vivid journalistic account of IMF policies during the Asian crisis, see Paul Bluestein, The Chastening: Inside the Crisis that Rocked the Global Financial System and Humbled the IMF (New York: Public Affairs, 2001)
- Morgan , J. P. March 28, 2001 . Securities March , See
- May 3 2001 . OECD Observer May 3 , “Turkey's Crisis,”
- Ibid
- 2001 . Remarks by Peter Garber of Deutschebank at the NBER Conference on “Exchange Rate Crises in Emerging Markets: Turkey,” Cambridge, MA, July 18
- The apparent reason for the dispute was the president's charge that the Ecevit government was not undertaking the necessary measures to fight corruption among public officials
- Radikal Feb. 20, 21, and 22, 2001
- 2001 . Among others, see Yeldan
- 2001 . For a discussion of the weakness of public banks, see Alper and Öniş The liquidity shortage of the two public banks seems to have originated from the Treasury's failure to cover the quasi-fiscal losses (“duty losses”) these banks incurred through directed lending to various sectors, particularly agriculture
- A discussion of this issue, however merited, is beyond the scope of this contribution