Turkish Miracle: How IMF Made Turkish Growth Sustainable?

With these words, Daron Acemoğlu, one of the greatest economists of our time, emphasizes the importance of the sustainable growth of Turkey created by the IMF's economic programme, adopted after the 2001 economic crisis. Studies display the fact that emerging markets experienced about 70 comprehensive economic crises within the last twenty years. One of the most considerable emerging markets, Turkey stands out to be a vulnerable economy with fluctuated growth.

After a devastating crisis in 2001, Turkey adopted neoliberal reforms under the direction of "Transition to Strong Economic Program" coordinated by Kemal Derviş and written by IMF. When it is evaluated from a broader perspective, the programme positively influenced the Turkish economy in terms of ensuring a sustainable growth thanks to its providing a successful macroeconomic stabilization, enabling social and economic equality and correctly implementing the austerity measures, although it has widely been criticized with the notion that it created a debt-driven growth model.

Through neoliberal IMF reforms, the Turkish economy achieved high rates of growth performance compared to its average annual growth in previous years and was also able to make the growth sustainable with the incrementation of total productivity rates and appropriately distributing the invested sources to the influential sectors. As the result of the IMF's intervention, Turkey raised its average GDP to 8% in 4 years, the fastest income growth experienced since the 1960s. Total Factor Productivity (TFP) was incremented by 3% over four years and constituted half of the real boost.

Fulfilling the financial targets of the IMF program, the Turkish economy achieved a stable macroeconomy and a sustainable monetary policy while lowering its inflation and interest rates. With the interiorization of the neoliberal reform set, the Turkish economy's interest rates and inflation levels dropped down from 3-digits to single digits. IMF completely overhauled the Turkish banking system by privatizing, strictly regulating, and turning them into competition-oriented institutions.

With the promoted IMF-based neoliberal applications, the Turkish economy ensured economic equality between people and communities by lowering the Gini coefficient, impacting the change in poverty statistics, and ensuring equal distribution of economic sources. The IMF effect on equality can be observed in the 5% decrease in the Gini coefficient within five years, which was slightly more than the OECD average. The middle class expanded, poverty rates declined, unemployment decreased, and the wage amount for the bottom increased.

After these quick steps taken to ensure economic equality in the short term, Turkey made its growth sustainable by also providing social equalities thanks to canalizing the direct foreign investments in proper ways. The statistics demonstrate that "life expectancy" or "mortality" rates between east and west, rural and urban locations went down from 40% to 10% rapidly. Remarkable improvements were achieved in the "learning skills" of children in lower socioeconomic status.

Apart from these macroeconomic and equality reforms, the IMF-directed neoliberal reforms positively influenced sustainability by ensuring a significant public debt reduction with the strict austerity measures. Within the five years that IMF reforms were being carried out, public debt seriously declined from 80% to 30%. With the 2008 global financial crisis, Turkey benefited from this lower public debt strategy.

On the other hand, IMF's strictly applied austerity measures made the working conditions of the workers worse. The "union density" decreased from 30% to 5% as a result of the austerity measures. Just after the recovery through austerity, the welfare and economic condition of the working class started to go higher with more accessible credits.

With the debt encouragement for individuals and corporates, there had been a striking increase in both debts. The household debt to GDP ratio went up from 1.8% to 19.6%. Nevertheless, the harmful impact of the debt stock was trivial as long as the increase in the economy was more than increased debt stock.

Throughout this paper, the impact of IMF's "Transition to Strong Economy" programme is evaluated under the scope of the macroeconomy, equity, austerity and debt-based growth; thus, it is observed that the related reforms, generally, contributed to the stability and sustainability of the Turkish economy. Currently, emerging markets are dragged on the brink of a devastating economic crisis. This paper traces the consequences of the neoliberal reforms and proposes that neoliberal reforms may be regarded as a creator of a sustainable economy.