ABSTRACT
In the post-1980 era, Turkey’s economic policy stance has featured a sustained emphasis on openness in trade and finance, but has lacked a strong commitment to internal adjustment and public sector reforms. The trade policy regime has been liberalized in a gradual but credible manner that facilitated Turkey’s accession in 1995 to the Customs Union with the European Union. From 1980 to 1989, the trade reforms were effectively supported by realistic real exchange rates, which yielded an impressive export performance and enhanced Turkey’s international creditworthiness. In the post-1989 period, however, the capital account liberalization coincided with the revival of macroeconomic populism in an increasingly contestable political environment, thereby producing unsustainable fiscal and trade deficits. The mismanagement of the macroeconomy eventually led to a major currency crisis in early 1994, to which the government responded with a stabilization programme, entailing considerable social costs in the adjustment period.
