Premature Liberalization, Incomplete Stabilization: the Ozal Decade in Turkey

Dani Rodrik

NBER Working Paper No. 3300
Issued in March 1990
NBER Program(s):International Trade and Investment, International Finance and Macroeconomics

In late 1979, Turkey stood in the throes of a foreign exchange crisis, with widespread shortages, negative growth, and inflation into triple digits. A decade later, Turkey has a comfortable balance-of-payments situation, and sits atop considerable foreign exchange reserves. The economy has achieved a remarkable transformation from an inward-oriented outlook to an outwardoriented one. Yet, after some success in the early 1980s, inflation remains unconquered and the public sector budget is out of control. This paper provides an interpretation of the Turkish experience in the 1980s. It is argued that foreign capital inflows in the early 1980s cushioned the fiscal squeeze, and allowed a relatively painless reduction in inflation alongside a process of export-oriented growth. In the best of all possible worlds, the outward-oriented reforms would have taken sufficient root by the mid-1980s to allow the public sector to undertake the delayed retrenchment as the inflows came to an end, at no great cost to output. Instead, policy followed a mix of liberalization with patronage politics detrimental to monetary discipline. Financial liberalization reduced demand for base money at the same time that fiscal balances came under increasing strain due to the external transfer. Inflation was rekindled under the dual influence of fiscal deficits and a shrinking base for the inflation tax.

download in pdf format
   (373 K)

email paper

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w3300

Published: Michael Bruno, et al, editors. Lessons of Economic Stabilization and Its Aftermath. Cambridge, MA: The MIT Press, 1991.

Users who downloaded this paper also downloaded* these:
Krueger w2195 The Importance of Economic Policy in Development: Contrasts Between Korea and Turkey
Celasun and Rodrik Turkish Experience with Debt: Macroeconomic Policy and Performance
Celasun and Rodrik Turkish Economic Development: An Overview
Anand and van Wijnbergen w2731 Inflation, External Debt and Financial Sector Reform: A Quantitative Approach To Consistent Fiscal Policy With An Application to Turkey
Krueger Partial Adjustment and Growth in the 1980s in Turkey
NBER Videos

National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email:

Contact Us