Anatomy of a failed IMF program: The 1999 program in Turkey

Abstract

This paper analyzes the failed IMF program in Turkey that was initiated in December 1999. The 1999 Turkish exchange rate-based stabilization program was presented as an improved version of earlier programs implemented in Latin American countries. The inclusion of an exit strategy was considered as an innovative element of the Turkish program. However, the program crashed fourteen months after its initiation. This paper argues that the Turkish program underestimated the possible negative impact of unfavorable initial conditions, especially conditions of an institutional nature, which turned out to be a fatal mistake. Among the conditions that were ignored by the 1999 program were the absence of an independent and effective regulatory agency in the banking sector and the circumstances under which the Treasury carried out its borrowing.