The Present Global Crisis and Its Effect on the Turkish Economy

Abstract

The global economic crisis first started in the USA in September 2008 as a widespread insolvency problem caused by mortgage debts of households that had become unpayable. The financial crisis, in turn, caused a serious recession. The economic crisis soon spread to other developed countries because their banks held assets of US banks that had become nearly worthless while exports of these countries to the USA decreased significantly. Then it spread to developing countries because direct private investments (DPIs) and financial funds flowing from developed to developing countries declined precipitously while exports of the latter to the former countries also fell down. The developed countries, however, took proper steps to ameliorate the crisis by lowering the interest rates, helping the insolvent banks financially as well as launching public expenditure programmes. Turkey was one of the worst hit countries because she had been following wrong globalization strategies. Privatization process was corrupt while much of the DPIs went to those fields which did not yield much increase in employment or export potential. But most importantly, Turkey had raised interest rates to abnormally high levels and thereby had vastly expanded her internal and external debts. Hence, as a result of the global economic crises, Turkey suffered a significantly deep fall in her GNP growth rate and a very big increase in her unemployment rate. Though Turkey took several measures to ameliorate the balance of payments deficit and to expand total demand, hence production, the government refrained from making a stand-by agreement with the IMF in order to avoid strict discipline in her government expenditures due to first, local elections and presently, the coming parliamentary elections.