Turkish Financial Crisis
Turkey is the current sixteenth largest economy in the world, highest ranked than countries such as: Switzerland, Netherland or Sweden. Nevertheless the Turkish economy has faced a huge financial crisis in the years 2000 and 2001.
The relations between the President Ahmet Necdet Sezer and the Prime Minister Bulent Ecevit were complicated. The main reason for this was the fact that the President Sezer had permanently vetoed government’s decisions, and the Prime Minister had considered that, by such acts, the President exceeded his powers. That political instability led to an immediate negative reaction of the financial markets.
A substantial problem in the stabilization program appeared to be the fixed exchange rate of Turkish lira (TL) within certain limits and the controlled by the Central bank increase in the exchange rate of 25 % in 2000 given the declared inflation of 40 % and real inflation of about 50 %. This overestimation of Turkish lira lead to significant rising of production costs, incompetitiveness resulting in increased foreign trade deficit which in the end of 2000 exceeded the exports.
The policy of pegging the national currency to the US dollar cracked yet in November last year, but despite of this fact the government did not undertake the necessary measures to revise its monetary policy. Because of this reason the crisis from February this year strongly affected the financial sector and urgent monetary measures were to be taken, including escape from the fixed and declaring floating exchange rate.
Fitch decreased the long-term rating for debt denominated in local/ national currency from BB to B+ and put all the ratings of the country under observation in negative perspective. S&P lowered long-term and short-term rating of Turkey from B+ and B to B and C, respectively. The long-term rating of Ziraat Bankasi has been also decreased from B to C, and the short-term rating C has been reaffirmed. The long-term ratings of Export Credit Bank
The relations between the President Ahmet Necdet Sezer and the Prime Minister Bulent Ecevit were complicated. The main reason for this was the fact that the President Sezer had permanently vetoed government’s decisions, and the Prime Minister had considered that, by such acts, the President exceeded his powers. That political instability led to an immediate negative reaction of the financial markets.
A substantial problem in the stabilization program appeared to be the fixed exchange rate of Turkish lira (TL) within certain limits and the controlled by the Central bank increase in the exchange rate of 25 % in 2000 given the declared inflation of 40 % and real inflation of about 50 %. This overestimation of Turkish lira lead to significant rising of production costs, incompetitiveness resulting in increased foreign trade deficit which in the end of 2000 exceeded the exports.
The policy of pegging the national currency to the US dollar cracked yet in November last year, but despite of this fact the government did not undertake the necessary measures to revise its monetary policy. Because of this reason the crisis from February this year strongly affected the financial sector and urgent monetary measures were to be taken, including escape from the fixed and declaring floating exchange rate.
Fitch decreased the long-term rating for debt denominated in local/ national currency from BB to B+ and put all the ratings of the country under observation in negative perspective. S&P lowered long-term and short-term rating of Turkey from B+ and B to B and C, respectively. The long-term rating of Ziraat Bankasi has been also decreased from B to C, and the short-term rating C has been reaffirmed. The long-term ratings of Export Credit Bank