During the last four decades, Turkey has been hit hard by five financial crises of which three were “homemade” and two originated globally. Despite the lack of an effective shadow banking system, complicated off-balance-sheet items and many toxic assets, the homemade crises in fact occurred mainly due to public sector imbalances and local politics.
At the beginning of the most recent financial crisis, the guiding principle should have been to “act as quickly as possible” to correct imbalances. The USA and Turkey did this while the European Union is still thinking about the appropriate policy mix. After each crisis, Turkey focused on structural reforms. However, as in other industrial countries repair of bank balance sheets took priority particularly after 2008.
Political uncertainties and the political environment were often not conducive to extensive reforms, although some implemented partially with guidance and assistance from the IMF. Today, Turkey faces multiple challenges as a close neighbor of an increasingly turbulent EU and on the front line of the migrant crisis.
Gazi Ercel was Governor of the Central Bank of Turkey from 1996 to 2001, having previously worked for thirty years at the Turkish Ministry of Finance, at the Treasury and at the IMF in Washington. He is a leading commentator on financial policy. Gazi will share his insights from having lived through the five crises, highlighting what Turkey did that was helpful and which reforms could, with hindsight, have been implemented differently. He will comment on Turkey’s relationship with the EU, on the challenges currently faced by the Turkish banking system, and on the policy responses which are emerging.
He will present a recipe for preventing future financial crises in EMC’s and in Turkey. At a global level he will highlight the importance of the international financial architecture and particularly exchange rate systems.