Import Substitution

GAMZE DEMİREL          1203031011        ITB

Turkey’s first major debt crisis to surface was in the year 1978, prior to this crush turkey had experienced other crisis like those experience in Latin American countries in 1982. The two prior crisis in 1956 and 1975 had both needed help from the international monetary fund IMF but the crush of 1978 had a toil on the country making turkey the first major debt ridden country to surface globally. By 1982 when global debt was a general phenomenon in the world, turkey was already participating in the international capital markets and was an example of a success in terms of liberalization and stabilization.

The crush of 1978 was a result of various external and internal factors brewing to a catastrophe over a period of time. Turkeys trade policies and unconducive government environment are just few of the reason.  The oil price shock of 1974 forced European nations to to halt worker emigration. More than half a million Turkish citizens were working in western Germany were source of  foreign exchange through remittances from this countries. With the lack of any foreing exchange, imports sky rocketing and foreign trade dwindling by the day and an overvalued Turkish currency resulted into deficits. To finance the deficits turkey turned to borrowing short term debt from European countries. With the interest and the government lack of way to finance the debts led to the crisis

In 1980 the government took a sharp turnaround from its inward oriented policy which was import substitution industrialization to an outward oriented one. With Iran revolution and the Iraq iran war turkey was close ally to the US and the UE countries. This tie helped it have a closer relationship with the west in trade and development. The leading factor the economic stabilization was flexible exchange rate as the previous overvalued rates put off exports and created excess internal demands. A flexible exchange rate was the solution for achieving an effective liberalization process. With lower rates now exports were resumed and so did import over time as the restriction were slowly being lifted.