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The Turkish Crisis of 2001: A Classic?

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Author Info

  • CEM AKYUREK

Abstract

In February 2001, Turkey became the latest emerging market to experience a devastating crisis, following the collapse of its soft exchange rate peg. The crisis severely damaged the country's banking system and led to an unprecedented contraction in economic activity. The boom that preceded it seemed to be relatively short lived, as the initial rush of capital outflow occurred just eleven months after the start of the program, and the fatal exit just three months later. This paper discusses the factors that seemed to play an important role in the collapse of Turkey's International Monetary Fund (IMF)-supported exchange rate-based stabilization plan just thirteen months after its commencement. It is often difficult to attribute such crises entirely to a single factor, and not always possible to arrive at a strong verdict by analyzing economic developments in light of, or in the manner formally suggested by, the alternative models commonly used to analyze currency crises in the literature. In the Turkish case, enumerating the many factors that may have contributed to the collapse is important and very useful--yet this should not obscure the critical role played by the failure to establish or achieve tangible progress toward a sustainable fiscal regime. Not recognizing this fundamental weakness could easily lead observers to emphasize design flaws as the main culprit or to argue that the collapse could have been avoided if several other factors had broken more in Turkey's favor.

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Bibliographic Info

Article provided by M.E. Sharpe, Inc. in its journal Emerging Markets Finance and Trade.

Volume (Year): 42 (2006)
Issue (Month): 1 (February)
Pages: 5-32

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Handle: RePEc:mes:emfitr:v:42:y:2006:i:1:p:5-32

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Web page: http://mesharpe.metapress.com/link.asp?target=journal&id=111024

Related research

Keywords: currency crises; exchange rate�; based stabilization; fiscal policy;

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Cited by:
  1. Halicioglu, Ferda, 2007. "The Bilateral J-curve: Turkey versus her 13 Trading Partners," MPRA Paper 3564, University Library of Munich, Germany.
  2. Akyurek, Cem & Kutan, Ali M. & Yilmazkuday, Hakan, 2011. "Can inflation targeting regimes be effective in developing countries? The Turkish experience," Journal of Asian Economics, Elsevier, vol. 22(5), pages 343-355, October.
  3. Halicioglu, Ferda, 2007. "The Financial Development and Economic Growth Nexus for Turkey," MPRA Paper 3566, University Library of Munich, Germany.
  4. Halicioglu, Ferda, 2008. "The J-Curve Dynamics of Turkey: An Application of ARDL Model," MPRA Paper 6824, University Library of Munich, Germany.

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