6 Ocak 2013 Pazar

How does A Central Bank President Act During Crises?: Turkish Case


In this essay, we will discuss the responsibilities and the reactions of the presidents in a crises environment. As we have already known, in some times different economies face with different kinds of crises. It is already known that the financial markets are getting integrated and a negativity of a country immediately affects other countries. With this integration, there have been three major economical crises in the economy in the last decade of the 20th century. These crises were Asian Crises in 1997, Russian Crises in 1998 and the crises affected our country and Argentina in 2000 and 2001. 

It is accepted that the reason for the crises are summarized in three topics. These are stated below:[1]
  • The disorder in the economic activity of the countries
  • Speculative attacks from the manipulators
  • Both of the above
Whatever the reason of the economic crises is, the central bank president should react immediately in the crises environment. Rather than acting in crises environment, it is accepted that the proactive decisions that prevent the development of the crises are better. Nevertheless, even though the negative happenings can be clearly seen in the economy, due to the many reasons it could be very difficult to take precautions (i.e. conflicts with government).

The crises management of the central banks will be shown with the TCMB practice. It is known that Turkey was under crises environment in the beginning of year 1994. After many infeasible government policies, the country faced with a current account deficit. To overcome this problem, government decided on devaluation on 5th of April. In this bad environment the central bank president took the following decisions: [2]
  • Market economy must be continued,
  • All of the economic transactions will be under the central bank monetary policy framework.
  • TL transactions and TL savings must be attracted
  • The markets should be enlarged

With these policies, after six months from the crises, the crises environment started to disappear.

After this experience Turkish economy entered through another crises environment in the beginning of the new millennium. After having the November fluctuation in the economy in 2000, the fixed rate policy was kept going and this increased the current account deficit of the economy more. The precautions which were taken after this happening were for short term usage. Due to this the main problem had been continued for 3 months until the February crises. The important notes for this period are shown in the following:[3]
  • The demand both for TL and Foreign exchange were increased. This demand was not covered by the market and a liquidity shortage appeared.
  • Since the increase in the demand could not be covered by the market, either the interest or the foreign exchange rates started to increase.
  • The escape of the foreigners from the economy approached to 6.2 Billion USD.
  • The decrease in the IMKB Index started from 2.19 cent and ended with 1.08 cent.
  • Demirbank was acquisited by the insurance fund.
  • Current account deficit had been increased abnormally.

While the happenings shown above had been occurring in the financial markets, TCMB injected very limited money to the market.  TCMB thought that if they inject money to the financial markets this will result with the decrease in the foreign exchange reserves and the stability program will be spoiled. Due to this, they stopped to give money to the market and the liquidity demand of the market was tried to be covered by the banks. This increased the interest rates dramatically.

In 2000 and 2001 crises in Turkish economy, the central banks could not manage the monetary policy well. The president and his colleagues could not behave bravely and they left the banks with to their own fates. After these crises, every bank was affected very harshly and Demirbank went bankruptcy during this period. Due to the decrease in the trust of the banking sector, some other banks went bankruptcy after this period. If central bank had covered the financial needs of the banks at that time, some of the banks would have been rescued.

These crises showed that the reactions of the central bank presidents are very crucial to the economy especially during fluctuations. Because of this they must be determined and brave.


[1]Gökçe Aksu, “Mali Serbestleşmenin Krizler Üzerindeki Etkisi,”
[2]Yaman Törüner, Akşam Yazıları, İstanbul, İnkılap, 2000, p. 264.
[3]Havva Tunç, Türkiye Ekonomisi, İstanbul, Sümer, 2001, p. 56.

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