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Tuesday, May 10, 2005

Turkey and Structural Reform

Serhan Cevic continues to wax lyrical about the Turkish 'economic miracle' and certainly the results continue to be impressive. As he argues Turkey has certainly broken the strong negative correlation between volatility and growth. Turkey seems to have achieved something of a structural break in this cycle:

"thanks to structural reforms and prudent policy management after the 2001 crisis, the country has entered a new era shaped by not just a single-digit inflation rate but also a sustained moderation of inflation and output volatility that, in our opinion, constitutes a major macroeconomic development."
Serhan Cevic: Morgan Stanley Global Economic Forum

Turkey’s inflation rate stands today at 8.2%, down from an average of 77.5% in the 1990s, whilst the central bank base rate is at 15%. These numbers are obviously still pretty high, but they are steadily coming down to earth. There is little doubt that this is one of the success stories for the IMF structural reforms, but I can't help asking myself just what share in this success could be placed on the virtuous circle general global liquidity environment and the relatively lower interest rates that this generally makes possible.

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