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Foreign Aid and Adjustment in Turkey

In: The Economy of Turkey since Liberalization

Author

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  • Oliver Morrissey

Abstract

Aid has played a prominent role in the Turkish economy at various stages in the postwar period. In the immediate postwar period, US aid was an important source of funds for investment in agriculture and infrastructure (Krueger, 1974). Turkey was land-abundant and relatively well endowed with resources; it was more ‘dualistic’ than the average middle income country, the share of agriculture in GDP being close to the norm for all developing countries (Baysan and Blitzer, 1991). It was well placed to be a major exporter of agricultural commodities from the 1950s. However, the exchange rate was fixed at 2.8 Turkish Lira (TL) to the dollar from 1946 to 1958. While aid flows were able to sustain this initially, relatively high inflation (fuelled by a large budget deficit due to agricultural price support and the favourable position of State Economic Enterprises (SEEs)) lead to real overvaluation. Exports were discriminated against while the importcompeting sector was protected. An inability to finance necessary imports led Turkey to accept an IMF stabilization programme in 1958 and a substantial devaluation in 1960. While IMF credits helped to finance imports, the principle of government intervention, the favourable position of SEEs and protection for the import-substitution (IS) sector remained unquestioned and unchanged (Krueger, 1987).

Suggested Citation

  • Oliver Morrissey, 1996. "Foreign Aid and Adjustment in Turkey," Palgrave Macmillan Books, in: S. Togan & V. N. Balasubramanyam (ed.), The Economy of Turkey since Liberalization, chapter 5, pages 88-111, Palgrave Macmillan.
    • Handle: RePEc:pal:palchp:978-1-349-24464-5_5
    DOI: 10.1007/978-1-349-24464-5_5
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