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Paper no.
01/2009
Patterns of Adjustment in the Age of Finance: The Case of Turkey as aPeripheral Agent of NeoliberalGlobalization
A. Erinç Yeldan 
Abstract
Following the 2000-01 crisis, Turkey implemented an orthodox strategy of raising interest rates and maintaining an overvalued exchange rate. But,contrary to the traditional stabilization packagesthat aim to increase interest rates to constraindomestic demand, the new orthodoxy aimed at maintaining high interest rates to attract speculative foreign capital. The end result wasshrinkage of the public sector, deterioratingeducation and health infrastructure, and failure to provide basic social services to the middle class and the poor. Furthermore, as the domestic industryintensified its import dependence, it was forced toadapt increasingly capital-intensive foreigntechnologies with adverse consequences ondomestic employment. In the meantime,transnational companies and international financeinstitutions have become the real governors of thecountry, with implicit veto power over any economicand/or political decision that is likely to act against the interests of global capital.
JEL Classification
F 320; F 330; F 430
Key Words
Turkey financial crisis, IMF stabilisation package, jobless growthA. Erinç Yeldan is Professor at the Departmentof Economics, Bilkent University, Ankara.Email for Correspondence:yeldane@bilkent.edu.tr
THE IDEAs WORKING PAPER SERIES
 
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THE IDEAs WORKING PAPER SERIES
01/2009
Patterns of Adjustment in the Age of Finance: The Case of Turkey as aPeripheral Agent of Neoliberal Globalization
*
A. Erinç Yeldan
Turkey experienced a severe economic and political crisis in November 2000, and again in February2001. The crisis erupted as Turkey followed an
exchange-rate based disinflation programme
, led andengineered by the IMF.
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By 2001 the GDP had contracted by 7.4% in real terms, wholesale price inflationhad soared to 61.6%, and the Turkish Lira had lost 51% of its value against the major foreign currencies.The burden of adjustment fell disproportionately on the labouring classes as the rate of unemployment rosesteadily by 2 percentage points in 2001 and then by another 3 percentage points in 2002. Real wages fellabruptly by 20% upon impact in 2001, and had not recovered at the time this was being written.The IMF has been involved with the macro management of the Turkish economy both before and after thecrisis, and provided financial assistance of $20.4 billion, net, between 1999 and 2003. Following thecrisis, Turkey implemented the orthodox strategy of raising interest rates and maintaining an overvaluedexchange rate. The government was forced to follow a contractionary fiscal policy. It also promised tosatisfy the customary IMF demands: reduce subsidies to agriculture; privatize; and reduce the role of public sector in economic activity.The post-crisis economic and political adjustments were overseen by the newly founded Justice andDevelopment Party (AKP), which came to power in the November 2002 elections securing absolutemajority in parliament. Though maintaining the pro-Islamic political agenda, the AKP nevertheless distanceditself from the previous “National View” orthodoxy of the traditional Turkish Islamic movement. The AKPrefurbished itself with a more friendly view towards the West, ready to do business with global financecapital and willing to auction off strategic public assets to transnational companies. On the political arena,the AKP gave unequivocal support to US interests in the Middle East, including the then approaching warin Iraq.
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THE IDEAs WORKING PAPER SERIES
01/2009
With a new Stand-By Arrangement on which the AKP government reached consensus with the IMF in2005, the international financial institutions (IFIs) and the Turkish businesses were assured that the “reform”process would continue up to 2008, along the course set by the IMF’s
structural adjustment 
programmein 1998. The programme was officially declared as a bundle of policies aimed at checking increases in bothdomestic and external debt, and taking the country again to the path of “stable” growth. However, beyondwhat has been declared officially, the programme envisages much more radical arrangements in restructuringthe political and social life as a whole. The primary and the most important target of these arrangements isto
eradicate
public services and related achievements in the fields of social security, education and health,and to
commodify
these services through privatization. A critical point to be underlined here is that all thegovernments of the recent period, including the AKP, have displayed their “
most determined 
” politicalstand (and in turn were hailed as “
credible
” and “
reputable
”), completely ignoring the reactions comingfrom the people and the working classes. Seen from this angle, it will be safe to assert that Turkey constitutesone of the best examples of those societies where only formal aspects of political democracy are observedand nothing more (ISSA, 2006).In fact, shortly after it took office, the AKP abandoned the discourse, manipulating anti-IMF and anti-liberal reactions in the country, and showed no hesitation in fully adopting neo-liberal policies, entrustingthe national resources and economic future of the country directly to foreign capital and the non-fetteredworkings of the market. The distinguishing feature of the AKP government in this respect was that itundertook the mission of executing the neo-liberal project under the discourse of a “strong government”,without confronting any strong popular opposition (ISSA, 2006; Cizre and Yeldan, 2005). The AKP hadacted faster and more boldly than any preceding government in implementing the neoliberal agenda, in anattempt to respond to the requests of international capital on the one hand, and to settle its problem of adaptation to the state and administrative traditions of the country, on the other.The purpose of this paper is to portray the post-2001 crisis adjustments and the transformations in theTurkish political and economic arena under the auspices of the
 Bretton Woods Institutions
(the IMF andthe World Bank). It will focus on the macroeconomics of the AKP period, rather than the evolution of the2001 crisis
 per se
. The paper is organized under four sections. The first section is an overview of theTurkish macroeconomic adjustments with relevant economic evidence. The section focuses on the
speculative
nature of growth, with a detailed assessment of the modes of balance of payments financing
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