General Outlook on Effects of 2008 Global Crisis on Turkish Economy Ramazan Karaca Mahmut Kılıçoğlu Alperen Koçsoy Ergün Kurnalı Yusuf İhsan Kurt Zeynel Enes Mirza

Table of Content General aspects of 2008 crisis Macroeconomic Indicators (Turkey) Comparison with 1994 and 2001 Crisis Banking and Finance Measures to Counteract the Global Crisis

The Indicators of Financial Crisis Deregulation after Reagan Period. Two economic recessions in US economy: Dot-­‐com bubble and between 1997-­‐2000 – Cisco’s stock value fall down by 86%. Amazon’s stock price from 107 to 7 $. September 11 terror attacks, These caused uncertainty and lower confidence level in market.

Attempts for solution: FED lowered the Federal funds rate 11 times; – 6.5% in May 2000 to 1.75% in December 2001 – Boosted the economy in terms of liquidity. 1%, the lowest rate was seen in 45 years, in June 2003

The History of Effective Federal Funds Rate

The Outcomes of Low Fed Funds Rate Easier to borrow, because costs are much more lower. Trending new investment areas such as Mortgage credits Collateralized debt obligations(CDOs), rated by Moody’s and Standard & Poor’s

The Outcomes of Low Fed Funds Rate Prime Mortgages vs. Subprime Mortgages Naturally, subprime mortgages credits defaulted Mortgages became the property of banks. Banks put them for sale, creating more supply than there is demand. Prices of houses decreased, dramatically. Prime mortgage owners were paying much higher credits than their houses’ values. They abandoned their houses. No agent in the economy didn't want these worthless houses. Thus, the whole financial system was frozen.

Macroeconomic Indicators (Turkey)

* Source: TUIK * 2003=100 taken as a base year

* Source: TUIK

*Adjusted 1998 Prices

*Source: TUIK

*2010=100

*Source: CBRT Current Account Balance

Comparison with 1994 and 2001 Crises

Source: The Turkish Economy after the Global Financial Crisis ∗ Dani Rodrik** Turkey was hit harder by the global financial crisis of than by any of the previous instances of a sudden stop in capital inflows

In the crises of 1994 and 2001,the real exchange rate depreciated on the order of percent Depreciation in 2008 was short-lived than others. This was clearly linked to the more rapid resumption of capital inflows after the latest crisis Source: The Turkish Economy after the Global Financial Crisis ∗ Dani Rodrik**

The decline in real GDP during the first quarter of 2009 was the worst on record since But the recovery in economic activity has also been comparatively rapid. Source: The Turkish Economy after the Global Financial Crisis ∗ Dani Rodrik**

The adverse effects on the real economy were deeper than in the earlier crises. Source: The Turkish Economy after the Global Financial Crisis ∗ Dani Rodrik**

Unemployment reached a record-breaking level, nearly 16 percent, in 2009:Q1. After from 2008 crises employment creation become one of the most important goal in growth strategy. Source: The Turkish Economy after the Global Financial Crisis ∗ Dani Rodrik**

Banking and Finance The banking sector of Turkey have not been affected as much as the industrial sector and SME’s. The Reason: Strengtened structure of banking sector after 2001 crisis

Source : BRSA * 2015 data is up to September 31

Source: BRSA *2015 data is up to September 31

Source: BRSA *2015 data is up to September 31

Source: BRSA *2015 data is up to September 31

Source: BRSA, data is annually average *2015 data is up to September 31

Source: BRSA *2015 data is up to September 31

Source: BRSA *2015 data is up to September 31

Measures to Counteract the Global Crisis

CB (Central Bank) Cut main policy interest rate to 6.5% in November 2009 Turkish lira required reserve ratio was cut from 6% to 5% in October Foreign exchange buying auctions were suspended between October 2008 and August 2009 Measures to Counteract the Global Crisis

CB Additional foreign exchange liquidity was injected via foreign exchange selling auctions (October 2008, March–April 2009) Required reserve ratios for foreign currency deposits were lowered by 2 percentage points The limits of export rediscount credit were extended and their conditions eased Measures to Counteract the Global Crisis

Government Implemented an anti–crisis package; Reductions in contributions to the pension and health care funds, hike in public servants’ salaries, temporary cuts in special consumption and value added taxes on selected goods ‘Credit and Guarantee Fund’ for the financial sector to stimulate lending to the private sector, especially to small and medium–size enterprises. Measures to Counteract the Global Crisis

Government In 2009 tobacco and fuel taxes were raised and one–off arrangements to increase tax revenues were implemented. New measures included a voluntary disclosure, tax peace and asset repatriation programme.

References Source: The Turkish Economy after the Global Financial Crisis ∗ Dani Rodrik** Turkish Statistics Institution Turkish Banking Regulation and Supervision Agency Central Bank of Republic of Turkey Federal Reserve Rawdanowicz, Łukasz. (2010), “The Crisis in Turkey:Performance, Policy Responses and Challenges forSustaining the Recovery”, OECD Economics DepartmentWorking Papers, No. 819, OECD Publishing.

Thank You! Ramazan Karaca Mahmut Kılıçoğlu Alperen Koçsoy Ergün Kurnalı Yusuf İhsan Kurt Zeynel Enes Mirza