uccinctly and superficially, Turkey’s economic crisis of 2001, which led to a downturn of around 12 percent, was caused by too-high public deficits, out of control inflation and the subsequent devaluation of the lira (Kriwoluzky and Rieth p 356). But to understand how this happened, we must first look at Turkey’s history of chronically high inflation, its banking crisis of the previous year, the anti-inflationary policies of 1999, and the austerity measures in place since 1994 that were the result of yet another economic crisis. It might seem that Turkey is stumbling from crisis to crisis, but that is because the causes are either persistent and interrelated, or the cure for one crisis is the cause of another is up, or a combination of the two. Some crises have been home-made, others the result of external shocks. And while it is not the purview of this paper to discuss the political evolution of the Turkish governmental structures, some brief explanation is necessary in order to show why certain policies were (or were not) implemented. This paper will conclude with policy prescriptions that may have prevented them, and a brief description of more recent crises.

Inflation and the 1994 Crisis

Turkey was a leader in Import Substitution Industrialization (ISI) in the Middle East, and also the transition away from ISI to export-led growth. On January 24, 1980, Turkey began extensive plans to stabilize and liberalize its economy, which the military regime installed that year seemed to accomplish: lowering inflation, raising GDP growth and liberalizing trade and financial systems, but following general elections in ‘84, inflation began to rise again (Ertuğrul and Selçuk p. 13-14). The efforts after 1984 involved monetary tightening but no real effort reducing borrowing in the public sector, which meant higher and higher interest rates on local assets and a lower depreciation rate because of the need to get short-term capital inflow, but Turkey did not take the needed precautions fiscally; that combined with the growing external deficit, there was a major crisis in 1994 (Ertuğrul and Selçuk p. 14-15). Indeed, it was this over-dependence on short-term capital inflows followed by the (arguably premature) liberalization of capital accounts, that led to the 1994 crisis of balance of payments; the exports simply could not keep up with the boom in imports (Öniş p. 4-5). A general policy p