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The Political Economy of AK Party Rule in Turkey: From a Regulatory to a Developmental State?

The macroeconomic and financial stability orientation of AK Party governments, with their emphasis on fiscal discipline and the regulatory function of the state in the financial system, has allowed the Turkish economy to firmly withstand several internal and external shocks. Nevertheless, low economic growth, as well as high inflation, interest, and unemployment rates, and an unsustainable current account deficit continue to be the main challenges ahead. In the face of these challenges, AK Party started to follow a developmentalist discourse. Turkey’s transition to the status of a developmental state requires a comprehensive industrial, technological strategy so that different policy areas are in coordination with one another. For this purpose, public organizations need to improve their organizational capabilities and their communications with the real sector.

The Political Economy of AK Party Rule in Turkey From
"İstanbul Airport City uluslararası yatırımcıları Türkiye'ye çekecek"

Introduction

The Turkish economy started to integrate into the international economic and financial system in the early 1980s. Following the full capital account liberalization and currency convertibility decision in 1989, several premature and rapid financial liberalization decisions were reflected in a Turkish economy dependent on foreign capital flows, with unsustainable budget deficits, and very high public sector borrowing requirements. Combined with extraordinarily high inflation and interest rates, lack of proper regulation in the financial sector, and instability in the political system, the 1990s and early 2000s were characterized by economic and financial crises in Turkey. Assuming office in late 2002, the AK Party governments have prioritized macroeconomic and financial stability with fiscal discipline by assuming a largely regulatory function in the financial system, especially the banking sector. Nevertheless, regulatory practices in the financial system do not rule out deregulatory practices in different respects.1 While the IMF program, after the twin economic and financial crises in 2000 and 2001, built the foundations of the transformation of the Turkish economy, it would be an exaggeration to argue that the AK Party simply followed the IMF program after 2002. Successive AK Party governments have transformed the Turkish economy so that Turkey is not a crisis-prone country anymore, despite significant internal and external shocks to the economy. On the other hand, several challenges remain to achieve higher income levels for Turkish citizens, and to accomplish sustainable economic and social development in Turkey.

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