Survey
* Your assessment is very important for improving the workof artificial intelligence, which forms the content of this project
* Your assessment is very important for improving the workof artificial intelligence, which forms the content of this project
ECON 401 November 12, 2012 Export-led growth and the 1980s Late 1970s The rate of growth and the degree of industrialization depended on the availability of foreign exchange Foreign exchange shortage emerged as one the most important barriers to the industrialization process during the last years of the 1970s. The shortage of foreign exchange also led to the shortages of key intermediate goods such as oil and electricity (because oil was the main energy used in the production of electricity) Given the high prices of major intermediate goods and high wages, profits of the major industrialists had to be cut. As a result of falling profit share, both production and investment in industrial sectors started to decline in the late 1970s. High inflation and low growth rates became the major characteristics of the last period of the 1970s Transformation of Economic Policies in the 1980s How to solve the following problems: Declining share of profits Lack of foreign exchange or chronic external deficit problem High inflation Transition from an inward-oriented to an export-led growth model New treaties signed with the IMF and the World Bank in return for renewed access to external sources Stabilization policies along with structural changes in economy Reduction in government involvement in productive activities and increased emphasis on market forces Liberalization of external trade (and later external finance, as well) Deregulation of domestic markets (including labor and financial markets) The change started with the declaration of these policies as a “shock therapy” program in January 1980 The policies became real effective only after the military intervention in September 1980 On September 12, 1980, the military dissolved the parliament and suspended all civilian institutions A team of high-level technocrats became responsible for preparing and implementing this new policy Turgut Özal was appointed as the deputy prime minister in charge of economic policy His party also won the first elections in 1983 Stabilization policies (1981-1983) How to curb the demand at home? Repress trade unions Abolish the right to strike Determination of wages by public institutions rather than through collective bargaining (compulsory incomes policy) Cutting back the support prices in agriculture led to reversal of terms of trade against farmers How to balance the budget deficit? Improvement of the balance sheet of State Economic Enterprises (SEEs) Elimination of price controls and huge price increases by SEEs Reduction in public expenditures and tax increases How to promote exports? New exchange rate policy Overvalued currency led to a fall in exports and generated an excess demand in f/x markets Starting in 1980 after a 100 % devaluation, nominal exchange rate had been kept low Turkish currency depreciated by 50 percent in real terms between 1979 and 1987 Indicators of Distribution of Income Real wage index in industry Average 1978/79 1988 100 71 Share of wages in total 37.2 in value added 15.4 Agricultural terms of trade 61 100 Structural Changes Domestic financial liberalization Elimination of limits on interest rates (credits and deposits) How to get positive real interest rates for higher savings Crisis in 1982 (pyramid type of investments by money brokers), then some controls in financial markets were reintroduced Istanbul Stock exchange was established State and treasury bonds became the major financial asset in the 1980s. Financing of public expenditures started to shift towards domestic borrowing Liberalization of international trade Reducing quotas and tariffs Elimination of any regulation regarding the use of foreign exchange associated with external trade Change in the tax system Lower tax burden on business and high income groups Tax exemptions for interest gains as a result of owning bonds or for capital gains real estate and financial assets Implementation of the value added tax in 1985 The role of Government in economic activities Financial difficulties for the SEEs paved the way for future privatization SEEs mostly depended on public sources for their finances Starting in the 1980, SEEs were forced to finance their expenditures and investments from domestic and international markets These new loans and their interest payments increased SEEs’ vulnerability to market fluctuations