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Turkey is not the shining example of successful adjustment that it is often made out to be. The stabilization and adjustment policies followed since 1980 have actually undermined the structure of its economic development without correcting its weaknesses. Indeed, taken with the post-1984 import liberalization drive, these policies have set in motion a gradual de-industrialization of the Turkish economy.It is true that, in terms of overall output, the economy escaped the worst of the depression of the early 1980s, suffering only a mild recession and then recovering slowly. But this was based mainly on an expansion of exports, which has probably reached its maximum potential levels, and on a further inflow of foreign capital. The whole programme was implemented under the 'benevolent' sponsorship of the major international institutions. Even so, per capita GNP regained its 1978 level only in 1984. More important, the policies inflicted permanent damage on the sources of future growth.Total investment fell by 18 per cent in real terms between 1977 and 1984: and much of the investment that did take place reflected the completion of infrastructure spending by the public sector, such as irrigation schemes. Private manufacturing investment fell by nearly 50 per cent at constant prices during the same period. Employment in manufacturing has fallen, at a time when the labour force has been growing rapidly.Turkey's adjustment policies have relied mainly on holding down wages and cuts in real public spending - it was these cuts that set off the plunge in private investment. But the private sector has not stepped in to take up the slack, as hoped.This monograph argues that policies have to be changed. Like other borrowing countries, Turkey's most urgent requirement is to reduce its external debt burden. A de facto repudiation of its debt emerges as the principal condition for a resumption of a sustainable growth pattern. If debt repudiation is not on the agenda, effective exchange controls should be re-imposed to prevent the recurrence of uncontrolled debt expansion. High real interest rates which favour the rentier classes and deter investment should be eliminated and effective indexation schemes introduced; the excessive depreciation of the Turkish lira should be stopped and exchange rate policy should aim at a gradual appreciation of the effective rate; and the state should resume its historical role as an active participant in, and planner of, economic development. But all this could be justified only on the basis of a far-reaching democratization of Turkish society.


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