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The crisis in 2000-1 was a turning point in Turkey’s economy. It experienced a fast capital accumulation process, a great transformation towards goods investment and global economy integration. However, these changes were highly dependent on imported materials. To promote domestic capital accumulation, Turkey facilitated capital inflows that were aimed at boosting economical transformation. Cheap foreign exchange that enabled imported investment goods financing was among the policies set to attract capital inflows into the country. This was to provide a need for the money capital inform of foreign exchange.
The main policy option has been to accumulate foreign exchange reserves that will stabilize the currency and protect countries against sudden capital outflows. The second option has been contractionary monetary policy started to adopt inflation targeting (IT). IT is a mechanism whose aim is to regulate capital inflows, lower wages, provide predictability and instability for the investment environment. IT has led to high rate of interest that encourages foreign capital, growth in financial account ratio to GDP and growth in Turkey’s reserves even though unemployment has increased in the same period. The new phase of capital accumulation has seen relied production on intermediate and consumption goods.
Dynamics in intensive technology has increased cheapened foreign currency that has contributed to a raise in imports. Due to export oriented production, automotive and electronic industries have emerged. After the custom union agreement, the Asian and EU countries have been major trading partners in imports and exports respectively. Low wages have maintained global competitiveness. Liberalized interest rates and removal of domestic and external financial intermediation has seen growth in the banking sector. Foreign banks entered into Turkey’s market to explore new business opportunities and expand market share through merging and partnerships with domestic banks that has seen increased individual credits.
Turkish economy became globally integrated and as result achieved an import-dependent production growth, huge current account deficit, high level of private debts, increasing unemployment and indebted individuals. However, a real sector crisis that started in 2008 ended this growth and saw contraction of the economy by about thirteen percent. Huge external debts of the real sector, the liquidity and credit problem and the narrowing of international markets have been the main problems in Turkey.