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Turkey’s Response to the Global Economic Crisis

Turkey was not affected by the financial crisis as much as the advanced economies and managed to rapidly exit the turmoil. The reasons behind the strong response and quick recovery of the Turkish economy were its low country risk and low currency risk premiums. This study shows the foundations of these low risk premiums and compares some measures of these risks of the Turkish economy with peer countries. Second, this paper demonstrates that all of Turkey’s economic sectors were very strong before the crisis and sustained this strength during the course of the crisis. Finally, it discusses the policies that have already been taken and planned to be taken by Turkey’s economic authorities. The government seems to be very determined in keeping fiscal discipline as tight as necessary while not being excessive.

 

Turkey is among the few countries that were not affected from the recent financial crisis as much as the advanced economies. Moreover, it has become one of the countries that got out of the economic downturn first. The reasons behind this strong response and quick recovery can be placed under two categories: low country risk premium and low currency risk. The indebtedness of both private and public sectors were low compared to its peer countries and the foreign exchange positions of these sectors were very strong. Several different measures of the economy can be considered while comparing the Turkish economy with its peers and show the Turkish economy’s pre-crisis situation and its resilience to the financial downturn. These measures are leverage on households and the corporate sector, the public sector’s debt level, and foreign exchange positions of individuals, the public and the corporate sectors. However, in each measure the number of countries is limited by reliability and availability of the data.

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