As these words were being written (in October 1988) the Turkish economy stood at a crossroads. A model of stabilization and adjustment for long, Turkey had been perceived as one of the few examples of a successful transition from inward- to outward-oriented policies during the turbulent economic conditions of the 1980s. But the strains accumulated in this transition were now becoming all too evident. The opening-up of the political system following the military rule of the early 1980s had led to a series of hotly contested elections, exerting growing pressure on fiscal balances. As the public-sector deficit had started to get out of control, so had the inflation rate, reaching all the way to its levels in the pre-adjustment period. The trend deterioration in real wages had accentuated political conflict and led to demands for compensatory policies. Added to the growing burden of external debt service, these developments now raised serious doubts as to the sustainability of the strategy.
KeywordsInterest Rate Real Wage Private Investment Nominal Interest Rate Debt Crisis
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