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40th year of Turkey's transition to liberal economy

40th year of Turkey's transition to liberal economy
Building blocks of Turkish economy's liberalization, 'Jan. 24 decisions', includes chapter of structural reforms for transition

By Tuba Sahin

ANKARA (AA) - Turkey marks 40th year of one of the most radical moves in its history, which aimed to liberalize the economy through structural reforms.

Decisions announced on Jan. 24, 1980 changed the basic paradigm of Turkey's economy, springing it to life with a free market economy approach.

Suleyman Demirel -- who would later serve as Turkey's ninth president in 1993-2000 -- formed a minority government at the beginning of 1980, and appointed then-Prime Ministry Undersecretary Turgut Ozal -- Turkey's 10th president -- to the top of the economic transition management with full authority, and Ozal prepared a stability package on Jan. 24, 1980.

Considering the move a milestone in Turkish economy, economists discussed that the upcoming steps would be incapable of achieving the main goal in the long term although the country gained ground in the short term.

The previous economic model became unsustainable due to obstruction in import substitution industrialization model, constant balance of payments problems, high inflation rate and expanding budget deficit, Mustafa Necat Coskun, an academic at Haci Bayram Veli University in Turkey's capital Ankara, told Anadolu Agency.

The country applied outward-oriented growth model through structural transition, thanks to the Jan. 24 decisions, Coskun said.

"Controls on prices have been lifted, and all prices, including interest rates and exchange rates, have been set to float freely in the market.

"Privatization programs, aimed at market liberalization, have been implemented." he noted.

The global economic integration of Turkey was granted with further steps, Coskun said, and added: "Although the overall strategy change was accurate, the country required more steps to eliminate structural problems."

Atilim Murat, an academic from TOBB University of Economics and Technology in Ankara, stressed the importance of with the Jan. 24 decisions in easing the exchange rate control for foreigners to invest in Turkish assets.

He pointed the reduced weight of the state in the economy after 1980s, due to privatization, adding: "The Jan. 24 brought liberal capital movements, but we also entered into an inflation spiral with the rise of public spending in the following periods."

The understanding of economic policy has completely changed after the Jan. 24 decisions, Murat Cetinkaya, another academic at Haci Bayram Veli University, noted.

"An import substitution, partially closed-out statist policy approach was abandoned and an export-based policy was adopted." Cetinkaya said.

He added that Turkey's integration with international capital and free market economy were the main strategies of the move.

"The policies following the Jan. 24 decisions, and the important strategy change were not sufficient to contribute to the stabilization of the economy," Cetinkaya added.

- Jan. 24 decisions

Decisions, announced on Jan. 24, 1980, aimed to curb inflation, fill in the foreign financing gap, and attain a more outward-oriented and market-based economic system.

Based on these decisions, export subsidies were granted and exchange rates were allowed to float to make Turkish exports more competitive, which would lead to the promotion of export-led growth.

According to the program, the Turkish Lira devaluated 37.2% and daily exchange rate announcement was initiated.

It suggested measures to reduce the share of the state in the economy.

In line with the adjustment in the State Economic Enterprises’ pricing, agricultural subsidies were limited.

With the decisions, subventions were removed, except in fertilizer, energy and transportation sectors.

The country's foreign trade was liberalized. Foreign capital investments were promoted, profit transfers were facilitated, and overseas contraction services were supported.

Imports were gradually liberated. Exports were promoted through tax refunds, low interest loans, customs exemptions in imported inputs for exporter manufacturers.

Residents were permitted to hold foreign currency, foreign exchange deposits and to make payments via foreign exchange.

Importing and exporting all kinds of securities were allowed.

source: News Feed
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